A person has invested Rs. 20,000 in hundred-rupees bond and redeemable at the end of 10 years at 110, and paying annual dividends at 4%. The yield rate is to be 5% effective. Then which of the following statements are TRUE?
A. The annual dividend is Rs. 800.
B. The annual dividend is Rs. 1200.
C. Redemption price is Rs. 22000.
D. Redemption price is Rs. 20000.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → A and C only
The investment of Rs. 20,000 in Rs. 100 bonds means 200 bonds with a total face value of Rs. 20,000. The dividend is paid on the face value, and each bond is redeemed at Rs. 110 (redemption price). The yield rate of 5% is not needed for these statements.
\( \text{Annual dividend}=4\%\times 20000=800 \)
\( \text{Redemption price}=200\times 110=22000 \)
So the annual dividend is Rs. 800 and the redemption price is Rs. 22,000.
Checking the statements
(A) The annual dividend is Rs. 800 — Correct. 4% of Rs. 20,000 is Rs. 800.
(B) The annual dividend is Rs. 1200 — Incorrect. The dividend is 4% of the face value, Rs. 800.
(C) Redemption price is Rs. 22000 — Correct. 200 bonds at Rs. 110 each give Rs. 22,000.
(D) Redemption price is Rs. 20000 — Incorrect. Rs. 20,000 is the face value; at 110 the bonds are redeemed for Rs. 22,000.