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question on bond value
#1
A bond, whose par value is Rs. 1000, bears a coupon rate of 12 % and has a maturity period of 3 years. the required rate of return on the bond is 10 %. what is value of this bond ?

annual interest payable  = 1000 * 12 % = 120

principal repayment at the end of 3 years = Rs. 1000

The value of the bond

= 120 (PVIFA 10 % , 3 yrs ) + 1000 (PVIF 10 %  , 3 yrs ) 

 (PVIFA 10 % , 3 yrs )   value would be given in exam and  value of (PVIF 10 %  , 3 yrs )  can be calculated using  1/(1+r)^n

then

= 120  (2.487 ) + 1000  (0.751)
= 298.44 + 751
= 1049.44   ans
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