Question
An insurance company invests in a ₹1,000 face value
bond carrying a 7% annual coupon, maturing in 10 years. Market interest rates fall to 5% soon after purchase. The bond is now trading at a premium. What happens if the company sells the bond before maturity in the secondary market?Solution
When interest rates fall, existing bonds with higher coupon rates (here 7%) become more attractive, increasing their market price. Selling at this higher price earns a capital gain.
Which type of bond allows the holder to convert it into a specified number of equity shares?
A bond selling at a price higher than its face value is said to be selling at:
Which of these explain effective interest method for amortisation of premium/discount on bonds?
A company issues ₹10 crore worth of bonds at a coupon rate of 8% annually, while the market interest rate is 10%. The bonds are sold at a discount. Wh...
When market interest rates rise, the market price of existing bonds:
The duration of a bond is a measure of its:
A zero-coupon bond with a face value of ₹1,000 matures in 5 years. If the market yield is 8%, what is its present value? (PV factor for 5 years @ 8% i...
A company issues a 10-year callable bond with a 9% coupon. After 5 years, market interest rates fall to 6%. What is the most likely action the issuer wi...
Bond face value ₹1000, coupon 10%, maturity 5 years, YTM 12%. Price = ? (PV factors: 3.605 for annuity, 0.567 for single sum)
Interest payable on the bonds is a/an _________
