A company has issued a bond having face value of Rs. 70,000, carrying an annual dividend rate of 8% and maturing in 15 years. If the bond is redeemed at par, then which of the following statements are true?
A. The annual dividend is Rs. 5,600.
B. The annual dividend is Rs. 6,300.
C. Redemption price is Rs. 73,000.
D. Redemption price is Rs. 70,000.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → A and D only
The annual dividend is calculated on the face value.
\( \displaystyle \text{Annual dividend}=70{,}000\times\frac{8}{100} \)
\( \displaystyle =\text{Rs. }5{,}600 \)
Redemption at par means the bond is repaid at its face value.
So the annual dividend is Rs. 5,600 and the redemption price is Rs. 70,000.
Checking the statements
(A) The annual dividend is Rs. 5,600 — Correct. It is 8% of Rs. 70,000.
(B) The annual dividend is Rs. 6,300 — Incorrect. The dividend is Rs. 5,600; Rs. 6,300 would be 9% of Rs. 70,000.
(C) Redemption price is Rs. 73,000 — Incorrect. At par the price equals the face value, Rs. 70,000.
(D) Redemption price is Rs. 70,000 — Correct. The bond is redeemed at its face value.