Professional Documents
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Bond Valuation
1. Mr. A is willing to purchase of five years Rs. 1000 par value bond having coupon rate of
9%. A's required rate of return is 10%. How much should Mr. A pay to purchase the
bond if it matures at par?
3. A debenture of Rs.100 face value carrying interest rate of 12% is redeemable after 6
years at par. The current market price of the debenture is Rs. 90. Whether one should
buy the debentures if the expected rate of return is 15%?
4. A bond with face value Rs. 10,000 and a coupon rate of 7% matures after 5 years at
par. The required rate of return is 8% and current market price of bond is Rs. 96000.
Will you buy a bond?
5. ABC Ltd wants to issue debentures on the following terms and conditions.
Face Value: Rs. 100 per debenture
Life: 7 years
Coupon rate
1-2 years 8% p.a.
3-4 years 12% p.a.
5-7 years 15% p.a.
The company proposes to issue so as to yield a return of 16% p.a. to the investor.
Determine the issue price if redemption is at a premium of 5%.
6. A bond with face value Rs. 100 and Coupon rate of 9% matures after 10 years at a
premium of 10%. The expected rate of return of an investor is 12%. Current market
price of bond is Rs. 87.50. Will you suggest the investor to buy the bond? What if the
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Bond Valuation
market price changes to Rs. 85.94 will your decision change? (Interest is paid every 6
months)
7. A bond with face value Rs. 1000 bearing interest @ 6% half yearly matures after 4 years
at par. The expected rate of return of an investor is 10% should the investor buy the
bond if the current market price of bond is Rs. 1050?
8. Salman ltd has issued fully convertible debenture with face value Rs. 100 with a coupon
rate of 16% p.a. which will be converted in 10 equity shares of Rs. 10 each at the end of
6 years. Find out the value of debenture if the expected rate of return of an investor is
20% and expected market price of one share after 6 years is Rs. 28.50. Interest on
debenture is paid on half yearly basis.
9. Sanjay Ltd. has issued a debenture with face value Rs. 1000 bearing interest @ 24%
half yearly maturing after 5 years at par. The expected rate of return of an investor is
12%. Should the investor buy the debenture if the current market price of debenture is
Rs. 1000?
10. Akshay Ltd wants to issue debentures redeemable after 7 years at a premium of 10%.
Face value of debenture is Rs. 1000. The company proposes to issue so as to yield a
return of 12% p.a. to the investor. The coupon rate for the first 3 years is 13% p.a.
which will be increased by 2% p.a. for the rest of its life. As CFO of the company advice
the issue price of the debenture.
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Bond Valuation
13. A Bond of Rs. 1000 has a coupon rate of 8 per cent per annum and maturity period of
3 years. The bond is currently selling at Rs. 910. What is the yield to maturity in the
investment of this bond?
14. A Ltd. has issued bonds of the par value of Rs. 1000. The present value of the bond is
Rs. 900. The bond carries an interest rate of 14%. The maturity period is 6 years. You
are required to calculate the yield on maturity.
15. A GOI bond of Rs. 1,000 each has a coupon rate of 8 per cent per annum and maturity
period is 20 years. If the current market price is Rs. 1,050, find YTM? Use the formula.
16. Mr. Anik is planning for making investment in bonds of one of the companies i.e.
either X Ltd. or Y Ltd maturing at par. The details of these are as follows.
Compan Face Coupon Maturity
y
XLtd. Value
Rs. 10,000 Rate
6% Period
5 years
YLtd. Rs. 10,000 10% 5 years
The current market price of X Ltd.'s bond is Rs. 9,455/-. Find out current market price
of Y Ltd.'s bond if both bonds have same Yield to Maturity (YTM).
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