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##### SOLVED NUMERICAL PROBLEMS
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.

Solution

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.

Solution

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 ...

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