A ₹1,000 bond pays a 7% coupon yearly and is repaid in 4 years. Buyers require 6%. What is it worth? (Take the present value of ₹1 a year for 4 years at 6% as 3.4651, and $\frac{1}{(1.06)^{4}} = 0.7921$ .)

₹1,000Correct answerYour answer₹1,012.66Correct answerYour answer₹1,034.66Correct answerYour answer₹1,072.10Correct answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer C

Correct answer: C

Coupons: $70 \times 3.4651 = 242.557$ . Face value: $1{,}000 \times 0.7921 = 792.10$ .
Value $\approx 1{,}034.66$ rupees, a premium, since 7% beats 6%.

Worth noting

₹1,072.10 discounts the coupons but takes the face value undiscounted, at ₹1,000.

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

A ₹1,000 bond pays a 7% coupon yearly and is repaid in 4 years. Buyers require 6%. What is it worth? (Take the present value of ₹1 a year for 4 years at 6% as 3.4651, and 1(1.06)4=0.7921\frac{1}{(1.06)^{4}} = 0.7921(1.06)41​=0.7921.)