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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 exactly 2 years and is priced at Rs 900 today. Its annualised yield to maturity, using annual compounding, is closest to:

The yield to maturity is about 5.4% a year. The bond grows from Rs 900 to Rs 1,000 in two years, so the compounded rate solves 900 x (1+y)^2 = 1,000. Taking the square root of 1.1111 gives roughly 1.054, so y is about 5.4%.

  1. A5.4%Correct
  2. B5.0%
  3. C10.0%
  4. D11.1%

Explanation

YTM = (1,000/900)^(1/2) - 1. 1,000/900 = 1.1111 and its square root is about 1.0541, giving 5.41%. Simple annual return 11.1%/2 = 5.56% ignores compounding, and 5.0% and 10.0% are not supported by the data.

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