Investors want exactly 10% a year from a 2-year bond whose ₹1,000 face value earns a 10% coupon each year. At what price does the bond trade?

Explanation

1. 01

   Its value is $\frac{100}{1.1} + \frac{1{,}100}{(1.1)^{2}}$, the present value of the coupons and the repayment.

2. 02

   When the required return equals the coupon rate this is exactly the face value, ₹1,000: the bond sells at par.