A bond with face value ₹1,000 pays an 8% coupon yearly and is repaid in 2 years. Buyers require 10% a year. What is the bond worth? (Take $\frac{1}{1.1} = 0.9091$ and $\frac{1}{(1.1)^{2}} = 0.8264$.)

Explanation

1. 01

   Year 1 brings ₹80 and year 2 brings $80 + 1{,}000 = 1{,}080$.

2. 02

   Value $= 80 \times 0.9091 + 1{,}080 \times 0.8264 = 72.73 + 892.51 = 965.24$ rupees, below par because 8% is less than 10%.