QN.3a. Reliant Ltd has to redeem 12% Rs. 30 million debenture 5 years hence.How much should it deposit annually in sinking fund account so that it canaccumulate Rs. 30 million at the end of 5 years.Answer:
FV = installment * PVIFA (i, y)30,000,000 = installment * PVIFA (12%, 5)30,000,000 = installment *3.60530,000,000 ÷ 3.605 = installment.Installment = 8,321,775.31
QN.3b. Road Transport Corporation issued deep discount bonds in 1996 whichhas a face value of Rs. 2, 00, 000 maturing after 25 years. The bond was issued atRs. 5300. What is the effective interest rate earned by the investor from this bond?Answer:
A = Po (1+i) n200,000 = 5300(1+i) 25Solving for r, 200,000/5300 = (1+i) 25 37.7358 = (1+i) 2537.73581/25 = (1+i)i = 15.63% is the effective interest rate per annum.
QN.4. A bond has a par value of Rs. 1000 bearing a coupon rate of 10% maturingafter 10 years. If the YTM is 12% what is the market value of the bond? If the YTMis increase to 14%, what is the market value of the bond? Compare and give theinference.Answer:
Interest payable = 1000*10% = Rs 100Principal payment = 1000YTM = 12%