NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Fixed Income Securities
A zero-coupon bond with face value Rs 1,000 matures in 3 years and is priced at Rs 751.31 today. What is its yield to maturity, compounded annually?
The yield to maturity is 10%. Discounting Rs 1,000 over three years at 10% gives 1,000 divided by 1.331, which equals Rs 751.31, matching the given price exactly, whereas 9% would give a higher price of about Rs 772.
- A10%Correct
- B9%
- C11%
- D8%
Explanation
Price = 1,000/(1+y)^3. At 10%, 1.10^3 = 1.331 and 1,000/1.331 = 751.31. At 9%, price would be about 772.18, so 9% is wrong.
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