A Rs 1000 face value bond bearing a coupon rate is 10% p.a. will mature in 5 years. IF the discount rate is 15% p.a., find the present value of the bond.
Answer & explanation
Correct answer: option 4
The correct answer is option (4) : ₹832.40
Given $F= ₹1000, r= 10$% p.a, $N=5\, years $
$d= 15$%p.a, $i= 0.15$
$C=F×\frac{r}{100}=1000×\frac{10}{100}=₹100$
$P.V=\frac{100[1-(1.15)^{-5}]}{0.15}+1000(1.15)^{-5}$
Let $x= (1.15)^{-5}$
Taking log on both sides
$log\, x = -5log 1.5$
$=-5×0.0607$
$=-0.3035$
$log\, x = T.6935$
$x= amtilog\, \overline{1}.6935$
$x= 0.4972$
$P.V.\frac{100[1-0.4972]}{0.15}+1000×0.4972$
$=\frac{100×0.5028}{0.15}+497.2$
$=335.20+497.20$
$=₹832.40$