The price at which the bond is sold to the investors at the time of issue is known as:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Face value
The face value (also called the par value) of a bond is the price at which the bond is issued, that is, sold to the investors when it is first issued. It is also the amount on which the coupon interest is calculated.
Why the other options are incorrect
Option (1) Redemption price — Incorrect. The redemption price is the amount paid back to the bondholder when the bond is redeemed at maturity.
Option (2) Fair price — Incorrect. The fair price is the present value of the future coupon payments and the redemption amount, used to value a bond at any time.
Option (4) Coupon rate — Incorrect. The coupon rate is the rate of interest paid on the face value, not a price.
CBSE Applied Mathematics (Class XII):
Valuation of Bonds
