A bond of face value Rs 100 is offered for sale when its present value is Rs 109.29. Arrange the following in the order in which they take place:
(A) Competitive bidding raises the price of the bond above its face value.
(B) The bond is found to be more attractive than a savings bank account.
(C) The price of the bond becomes equal to its present value.
(D) People rush to get hold of the bond.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (B), (D), (A), (C)
The bond is worth Rs 109.29 but sells for only Rs 100. Each step leads to the next:
(B) The bond is found to be more attractive than a savings bank account. — First, buyers see that the bond gives more than its price.
(D) People rush to get hold of the bond. — Then demand for the bond jumps.
(A) Competitive bidding raises the price of the bond above its face value. — Buyers bid against each other, so the price rises.
(C) The price of the bond becomes equal to its present value. — Bidding stops when price = PV.
NCERT (2026-27): “The Speculative Motive … Calculation reveals that it is Rs 109.29 (approx.). It means that if you put Rs 109.29 in your savings bank account it will fetch the same return as the bond. But the seller of the bond is offering the same at a face value of only Rs 100. Clearly the bond is more attractive than the savings bank account and people will rush to get hold of the bond. Competitive bidding will raise the price of the bond above its face value, till price of the bond is equal to its PV. If price rises above the PV the bond becomes less attractive compared to the savings bank account and people would like to get rid of it. …” |