1. A company issues a 3-year zero-coupon bond with a face value of Rs 1,00,000. It is assumed that interest accrues twice a year. The investors wish to have a 5% return on investment. Find the issue value of the bond.


    Effective interest rate = {1 + (0.05/2)2} − 1 = 0.050625 = 5.0625%

    Issue value = Rs 1,00,000 / (1+ 0.050625)3 = Rs 86,229.19


  2. If a zero-coupon bond with a 5-year maturity is issued at Rs 13,611.66 and the investors’ required rate of return is 8%, find the face value of the bond.


    Rs 13,611.66 (1.08)5 = Rs 20,000


  3. A company issues a 5% Rs 1,00,000 bond with a 3-year maturity. The investors’ required rate of return is 8%. Find the investors’ intrinsic value of the bond if: (a) interest is ...

Get Fundamentals of Financial Management, Third Edition now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.