Aman buys a bond of face value Rs. 2,000 with a coupon rate of 7.5% per annum, the interest being paid half-yearly. The bond is redeemable at par after 4 years. The amount of each interest payment and the total interest he receives over the life of the bond are, respectively,
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs. 75 and Rs. 600
The yearly coupon is the coupon rate applied to the face value:
\( 0.075 \times 2000 = 150 \)
It is paid in two half-yearly parts, so each payment is
\( 150 \div 2 = 75 \)
In 4 years there are 8 half-years, so the total interest is
\( 75 \times 8 = 600 \)
Why the other options are incorrect
Option (1) Rs. 150 and Rs. 600 — Incorrect. Rs. 150 is the interest for a whole year; each half-yearly payment is half of it.
Option (2) Rs. 75 and Rs. 300 — Incorrect. Rs. 300 counts only 4 payments; there are 8 half-yearly payments in 4 years.
Option (4) Rs. 150 and Rs. 1,200 — Incorrect. This pays the full yearly coupon every half-year, which doubles the interest.