Question 2 20 marks A 6 year 8 coupon bond is offered for sale on 1 1 2023 Coupon is payable at the end of each year The redemption value of the bond is at par of Rs100 You are willing to subscribe to the bond but require a 10 p a yield What is the price at which you will be willing to buy the bond 4 What is the price of this bond on 1 1 2024 assuming the yield to maturity is unchanged at 8 4 On 1 1 2024, the Reserve Bank of India reduces interest rates to promote growth in the economy Investors are now satisfied with a 9 p a yield to maturity What will be the price of the bond after the RBI announcement 4 Due to market volatility and bad news about the company, price of the bond has declined to increased to Rs87 84 on 1 1 2025 What is the yield to maturity that investors are now requiring for investing in the bond 4

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Question: Question 2 [20 marks] A 6-year 8% coupon bond is offered for sale on 1/1/2023. Coupon is payable at the end of each year. The

Question 2 [20 marks]

A 6-year 8% coupon bond is offered for sale on 1/1/2023. Coupon is payable at the end of each year. The redemption value of the bond is at par of Rs100.

You are willing to subscribe to the bond but require a 10% p.a. yield. What is the price at which you will be willing to buy the bond? [4]
What is the price of this bond on 1/1/2024 assuming the yield to maturity is unchanged at 8%? {4]
On 1/1/2024, the Reserve Bank of India reduces interest rates to promote growth in the economy. Investors are now satisfied with a 9% p.a. yield to maturity. What will be the price of the bond after the RBI announcement? [4]
Due to market volatility and bad news about the company, price of the bond has declined to increased to Rs87.84 on 1/1/2025. What is the yield to maturity that investors are now requiring for investing in the bond? [4]

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