A firm raises a loan from the public by issuing a bond. The bond assures Rs 10 at the end of the first year and Rs 10 plus the principal of Rs 100 at the end of the second year. Match List-I with List-II for this bond:
| List-I | List-II | ||
|---|---|---|---|
| (A) | Face value | (I) | Rs 10 a year on the principal of Rs 100, that is, 10 per cent |
| (B) | Maturity period | (II) | The amount which, if kept today in a savings bank account, would fetch the same return as the bond |
| (C) | Coupon rate | (III) | Two years, at the end of which the principal is paid back |
| (D) | Present value of the bond | (IV) | The principal of Rs 100 that the firm borrows from the public |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A)-(IV), (B)-(III), (C)-(I), (D)-(II)
A bond is a paper that promises fixed payments over a fixed period.
| List-I | List-II | Reason |
|---|---|---|
| (A) Face value | (IV) The principal of Rs 100 that the firm borrows from the public | Face value is the amount borrowed, which is paid back at the end. |
| (B) Maturity period | (III) Two years, at the end of which the principal is paid back | The bond runs for two years and ends with the return of the principal. |
| (C) Coupon rate | (I) Rs 10 a year on the principal of Rs 100, that is, 10 per cent | The yearly payment of Rs 10 on Rs 100 gives a coupon rate of 10 per cent. |
| (D) Present value of the bond | (II) The amount which, if kept today in a savings bank account, would fetch the same return as the bond | Present value is the sum that, kept today at interest, earns the same as the bond. |
NCERT (2026-27): “The Speculative Motive … Typically, bonds are papers bearing the promise of a future stream of monetary returns over a certain period of time. These papers are issued by governments or firms for borrowing money from the public and they are tradable in the market. Consider the following two-period bond. A firm wishes to raise a loan of Rs 100 from the public. It issues a bond that assures Rs 10 at the end of the first year and Rs 10 plus the principal of Rs 100 at the end of the second year. Such a bond is said to have a face value of Rs 100, a maturity period of two years and a coupon rate of 10 per cent. …” Glossary: “Present value (of a bond) – That amount of money which, if kept today in an interest earning project, would generate the same income as the sum promised by a bond over its lifetime.” |