NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Fixed Income Securities (NISM XXI-A)
A zero-coupon bond with a face value of Rs 1,00,000 matures in 2 years and is priced to give a yield of 10% per annum, compounded annually. What is its approximate price today?
The price is approximately Rs 82,645. A zero-coupon bond is priced by discounting the face value at the yield for the full term: 1,00,000 divided by 1.10 squared, which is 1.21, gives about Rs 82,645.
- ARs 80,000
- BRs 82,645Correct
- CRs 90,909
- DRs 83,333
Explanation
Price = 1,00,000 / (1.10)^2 = 1,00,000 / 1.21 = Rs 82,645 approximately. Rs 80,000 uses simple discounting (1 - 2 x 10%). Rs 90,909 discounts for only one year. Rs 83,333 divides by 1.2, which is simple interest.
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