BALAJI COMMERCE CLASSES PROF. NIRAV HEMANI 9821555236/74002000236 T.Y.B.A.F (SEM-V) F.M.

CH. 3 BOND VALUATION

Q.1 A bond which has a par value is 1,000 bears a coupon rate of 12% and has maturity period of 3
years. The required rate of return on the bond is 10%. What is the value of this bond?

Q.2 Mr. Raja wants to purchase five years 100 par value bond having coupon rate of 8%. His required
rate of return is 10%. How much should Mr. Raja pay to purchase the bond?

Q.3 Consider a case where an investor purchases a bond having face value of 1,000, maturity period is
5 years and the nominal coupon rate of interest is 7%. The required rate of return is 9%. What should
he be willing to pay now to purchase the bond if it matures at par.

Q.4 A firm issued a 10% coupon interest bonds for a period of 10 years with a face value of ₹1,000. The
required rate of interest is also 10% and interest is paid annually. Find out the value of the bond.

Q.5 Mr. Vihan wants you to compute bond value if (1) Bond matures at par after 5 years (ii) Bond
matures at premium of 20% after 5 years (ii) Bond matures a discount of 10% after 5 years.

Q.6 A bond of 1,000 face value carrying interest rate of 10% is redeemable after 7 years at par. The
current market price of the bond is 930. Please advise whether one should purchase the bonds, if the
expected rate of return is 12%?

Q.7 A PSU firm wants to issue bonds on variable coupon rate. Other terms of issue are as follows:
Face Value: 100 per bond
Life: 8 years
Coupon rate p.a.
1-2 years: 6%
3-4 years: 8%
5-8 years: 9%
The firm plans to issue bonds at a price so that the investors earn a return of 10% p.a. You are required
to advise the firm on the issue price if bonds mature at a premium of 5%.

Q.8 Kadam Ltd. has issued a debenture with face value 1,000/- bearing interest @ 12% p.a. maturing
after 6 years at par. The expected rate of return of an investor is 15%. Should the investor buy the
debenture if the current market price of debenture is 1,300?

Q.9 Tiger Ltd. has issued a debenture with face value 100 bearing interest 10% p.a. maturing after 6
years at par, the expected rate of return of an investor is 15%. Should the investor buy the debenture
if the current market price of debenture is 81.04?

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BALAJI COMMERCE CLASSES PROF. NIRAV HEMANI 9821555236/74002000236 T.Y.B.A.F (SEM-V) F.M.
Q.10 Monkey Ltd. has issued fully convertible debenture with face value 1,000 with a coupon rate of
12% p.a. which will be converted in 25 equity shares of 10 each at the end of 9 years. Find out the value
of debentures if the expected rate of return of an investor is 10% and expected market price of one
share after 9 years is 48.

Q.11 Akshay Ltd. Wants to issue debentures redeemable after 7 years at a premium of 10%. Face value
of debenture is 1,000. The company proposes to issue so as to yield a return of 12% pa 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.

Q.12 Salman Ltd. has issued fully convertible debenture with face value? 100 with a coupon rate of 16%
p.a. which will be converted in 10 equity shares of 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 28.50. Interest on debenture is paid on half yearly basis.

Q.13 Sanjay Ltd. has issued a debenture with face value 1,000 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 1,000?

Q.14 A bond with face value of 100 and coupon rate of 8% matures after 5 years at a premium of 5%
The expected rate of return of an investor is 12% Current market price of bond is 92.50. The investor
seeks your suggestion on whether to buy the bond or no. If the market price changes to? 85 will your
decision change? (Interest is paid every 6 months)

Q.15 Zara Ltd.'s bond with a par value of 500 is currently traded at 435. The coupon rate is 12% and
it has a maturity period of 7 years. What is the yield to maturity?

Q.16 A bond with a par value of 1,000 has a coupon rate of 7 percent per annum and maturity period
of 5 years. The bond is currently quoted at 900. What is the yield to maturity in the investment in bond?

Q.17 Calculate yield to maturity (YTM) of bond 'A':

Annual Interest 10%
Face Value ₹100 and Market price ₹80
Life of bond- 10 years, if bond 'B' gives 16% YTM, which is better to invest?

Calculate yield to maturity (YTM) of bond 'A': Annual Interest -10%

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BALAJI COMMERCE CLASSES PROF. NIRAV HEMANI 9821555236/74002000236 T.Y.B.A.F (SEM-V) F.M.
Q.18 You are considering investing in one of the following bonds:
Bond Coupon Rate Maturity Price / ₹100 Par Value
Bond X 10% 8 Years ₹70
Bond Y 14% 10 Years ₹60
Your income tax rate is 30% and your capital gains tax rate is effectively 20% (ignore long term
indexation). What is your post-tax yield to maturity from these bonds?

Q.19 Kiara an investor wishes to invest in either of the bonds, you as financial planner are asked to
advise her which bond should be purchased and why? Support your answer with calculations based
on YTM method.
Bond Coupon Rate Maturity Price Per Bond
Sun 15% 10 Years ₹950
Moon 17% 12 Years ₹850
The bonds are expected to be redeemed at 20% premium. (Face Value 1,000)

Q.20 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:
Company Face Value Coupon Rate Maturity
X Ltd. ₹10,000 6% 5 Years
Y Ltd. ₹10,000 10 % 5 Years
The current market price of X Ltd.'s bond is 9,455. Find out current market price of Y Ltd.'s bond if both
bonds have same Yield to Maturity (YTM)

Q.21 Mr. Lion wants to invest one of the following Bonds having face value 1,000/- maturing at par:
Bond Coupon Rate Maturity Market Price
Bond M 12% p.a. 5 Years ₹1,080/-
Bond N 15% p.a. 5 Years ₹920/-
Recommend which bond should be purchased. Will your answer change if the required rate of return
is 14%?

Q.22 An investor is considering the purchase of the following bond.

Face Value 1,000.
Coupon Rate 10%
Maturity (at Par) 4 years
(i) If he wants a yield of 12% what is the maximum price he should be ready to pay for?
(i) If the bond is selling for 940/- what would be his yield?

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BALAJI COMMERCE CLASSES PROF. NIRAV HEMANI 9821555236/74002000236 T.Y.B.A.F (SEM-V) F.M.
Q.23 The following data is available for a bond.
Face Value 1000
Coupon Rate 16%
Years to Maturity 6
Redemption value ₹1,000
Yield to Maturity 17%
Calculate the duration of this bond.

Q.24 The following data is available for a bond.

Face Value Coupon Rate ₹100
Coupon Rate 9%
Years to Maturity 4
Redemption value 100
Yield to Maturity 10%
Market value 96.83

Q.25 Five years ago, you purchased a corporate bond for 942.50. At the time, the bond had a YTM of
10% and 8 years left to maturity. Today, the YTM on your bond is 7%. With this information, can you
calculate the current market price of your bond? Assume fixed annual coupon payments and a par
value of 1,000.

Q.26 XION Ltd. just issued ten-year bonds that make annual coupon payments of 50. Suppose you
purchased these bonds at par value of 1,000 when it was issued. Right after your purchase, market
interest rates jumped and the YTM (Interest rate) on your bond rose to 6%. What is the new price of
your bond?

Q.27 Amazon Company bonds, with current yield 12%, will mature after 10 years. The coupon rate of
these bonds is 10% and face value is 1,000. Calculate their market price and the yield to maturity.