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Question

What is the value of the bond whose Face value is Rs.1000 having a coupon rate of 10% when the required rate of return is 14%?

A More than its face value Correct Answer Incorrect Answer
B Less than its face value Correct Answer Incorrect Answer
C Equal to face value Correct Answer Incorrect Answer
D A or C Correct Answer Incorrect Answer
E B or C Correct Answer Incorrect Answer

Solution

Here the required rate of return or market interest rate of 14% is more than the coupon rate of 10% on the bond. As such, the price of the bond will be at a discount and lower than its face value.

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