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CA Intermediate · Financial Management and Strategic Management · Types of Financing

Rohan Textiles Ltd. issues 5,000 zero coupon bonds at a deep discount, each with a maturity value of Rs 1,000 payable after 3 years. The issue price per bond is Rs 751.30 (that is, the discount rate is 10% per annum). What is the total amount raised by the company?

The company raises Rs 37,56,500. Zero coupon bonds are issued at a deep discount, so proceeds equal the number of bonds multiplied by the issue price: 5,000 x Rs 751.30. The Rs 50,00,000 figure is only the total redemption value payable after three years.

  1. ARs 37,56,500Correct
  2. BRs 50,00,000
  3. CRs 32,50,000
  4. DRs 41,30,000

Explanation

Amount raised = 5,000 x Rs 751.30 = Rs 37,56,500. Rs 50,00,000 is the total maturity value, which is wrongly taken as the proceeds. Rs 1,000 discounted at 10% for 3 years gives 1,000 x 0.7513 = Rs 751.30, which confirms the issue price.

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