A bond pays a ₹50 coupon at the end of each of the next 3 years. Buyers require 5% a year. What is the present value of the coupons alone? (Take $\frac{1}{(1.05)^{3}} = 0.8638$ .)

₹43.19Correct answerYour answer₹129.57Correct answerYour answer₹136.20Correct answerYour answer₹150Correct answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer C

Correct answer: C

The coupons are an annuity: PV $= R\,\frac{1 - (1 + i)^{-n}}{i} = 50 \times \frac{1 - 0.8638}{0.05}$ .
$= 50 \times 2.724 = 136.20$ rupees.

Worth noting

₹150 adds the coupons without discounting; ₹129.57 discounts all three by three years.

Ten questions from Perpetuity, Sinking Funds & Bonds, at your own pace.

Ten questions from Perpetuity, Sinking Funds & Bonds, at your own pace.

A bond pays a ₹50 coupon at the end of each of the next 3 years. Buyers require 5% a year. What is the present value of the coupons alone? (Take 1(1.05)3=0.8638\frac{1}{(1.05)^{3}} = 0.8638(1.05)31​=0.8638.)