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CS Executive · Corporate Accounting and Financial Management · Security Analysis

Bharat Infra issues a 3-year debenture of face value ₹1,000 with a 10% annual coupon, redeemable at par at the end of year 3. If the required rate of return is 10%, the intrinsic value of the debenture is:

The intrinsic value is ₹1,000. Because the coupon rate of 10% equals the required rate of return, discounting the coupons and the redemption amount at 10% gives a present value equal to the face value, so the bond sells at par.

  1. A₹900
  2. B₹1,000Correct
  3. C₹1,100
  4. D₹1,300

Explanation

When the coupon rate equals the required return, the present value of coupons and principal equals face value. Check: 100×2.4869 = 248.69 plus 1,000×0.7513 = 751.30, total about ₹1,000. Option ₹1,300 just adds undiscounted cash flows.

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