What return does the investor make on the ₹500…

What return does the investor make on the ₹500 bond by holding it to redemption?

Question 47

MediumOriginal question

An investor buys a bond of face value ₹500 with an 8% annual coupon for ₹480, one year before it is redeemed at face value.

What return does the investor make on the ₹500 bond by holding it to redemption?

4.17%Correct answerYour answer8.33%Correct answerYour answer12%Correct answerYour answer12.5%Correct answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer D

Correct answer: D

In the year the investor gets the ₹40 coupon and gains $500 - 480 = 20$ on redemption: ₹60 in all.
$\frac{60}{480} \times 100 = 12.5\%$ .

Worth noting

12% divides the ₹60 by the face value; the investor paid ₹480.

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

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