NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Fixed Income Securities
Mr. Iyer holds a zero-coupon bond of Rs 10,000 face value maturing in 2 years. If the required yield is 10% per annum compounded annually, what is the fair price today?
The fair price is Rs 8,264. A zero-coupon bond is priced by discounting the face value of Rs 10,000 for two years at 10% compounded annually, that is 10,000 divided by 1.21.
- ARs 8,000
- BRs 8,264Correct
- CRs 8,333
- DRs 9,000
Explanation
Price = 10,000 / (1.10)^2 = 10,000 / 1.21 = Rs 8,264. Rs 8,000 wrongly subtracts 20% simple, and Rs 8,333 discounts for only one year (10,000/1.2 is a simple-interest approach).
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