CA Inter P6 · Chapter 2 · Question 1 of 7
A financial institution issues deep discount bonds with a maturity value of ₹ 1,00,000, repayable after 10 years, carrying no periodic interest. If investors require a yield of 9% per annum compounded annually, the issue price (to the nearest rupee) should be about:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) ₹ 42,241
Explanation
A deep discount bond pays only the maturity value, so its price is the present value of that amount: ₹ 1,00,000 / (1.09)^10 = ₹ 1,00,000 / 2.3674 = ₹ 42,241. Using simple interest (₹ 1,00,000 / 1.90) gives ₹ 52,632, which ignores compounding. Discounting for 9 years instead of 10 gives ₹ 46,043.
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