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Perpetuity, Sinking Funds & Bonds · Question 59 of 63

What would the two-year bond be worth if the market yield fell to 8%?

Question 59

MediumOriginal question

A bond with face value ₹1,000 pays a 9% coupon at the end of each year and is redeemed at face value in 2 years. Answers to the nearest paisa.

What would the two-year bond be worth if the market yield fell to 8%?

Options for question 59

Show the answer and explanation
CorrectNot quiteAnswer C

Correct answer: C

Explanation

  1. Price =901.08+1,0901.082=83.33+934.50= \frac{90}{1.08} + \frac{1{,}090}{1.08^{2}} = 83.33 + 934.50.

  2. About ₹1,017.83, a premium.

Worth noting

₹1,018.52 discounts ₹1,100 for one year, lumping both payments together.

Concept
Bond prices rise as yields fall
Typical time
120 s
Your time
—
The rule this testsValuing a bond
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