Unit ko samjho · NISM Series XXI-B
Investing in Fixed Income Securities and Bond Valuation
6 questions is unit mein
Sawaal aur jawaab English mein hain, kyunki NISM ka exam paper bhi English mein hota hai.
Is unit mein kya hai
- What stays fixed for a plain fixed-coupon bond when market yields change?
- A bond pays an annual coupon of ₹80 and trades at ₹800. What is its current yield?
- A zero-coupon bond pays ₹1,000 in two years. At a 10% annually compounded required yield, what is its price?
- A two-year ₹100 bond pays 10% annual coupons and yields 10% annually. What is its Macaulay duration, approximately?
- Who normally decides whether to exercise the embedded call in a callable bond?
- A bond’s quoted clean price is ₹978 and accrued interest is ₹12. What settlement price applies, ignoring other charges?
Zaroori ideas
Practice bank se · 1
What stays fixed for a plain fixed-coupon bond when market yields change?
The contractual coupon stays fixed for a plain fixed-coupon bond even when required market yields change. Its trading price can move instead. Remember: A fixed coupon does not mean a fixed market price.
Hint Separate the contract’s cash flows from market valuation. Common mistake: Assuming all measures of bond return remain fixed with the coupon.
XXI-B-015Practice bank se · 2
A bond pays an annual coupon of ₹80 and trades at ₹800. What is its current yield?
Current yield is 10.00% because the ₹80 annual coupon is 10% of the ₹800 market price. Working: ₹80 ÷ ₹800 × 100 = 10%. Remember: Current yield uses market price and excludes the gain or loss at redemption.
Hint Current yield looks at annual income relative to today’s price. Common mistake: Using face value instead of the trading price.
XXI-B-016Practice bank se · 3
A zero-coupon bond pays ₹1,000 in two years. At a 10% annually compounded required yield, what is its price?
The price is approximately ₹826.45 because the only payment is discounted for two years. Price = ₹1,000 ÷ 1.10² = ₹1,000 ÷ 1.21 = ₹826.45. Remember: A zero-coupon bond is valued by discounting its maturity payment.
Hint Bring the single maturity payment back through both years. Common mistake: Discounting a multi-year payment for only one period.
XXI-B-017Practice bank se · 4
A two-year ₹100 bond pays 10% annual coupons and yields 10% annually. What is its Macaulay duration, approximately?
Macaulay duration is about 1.91 years because part of the bond’s value is paid after one year. Present values are ₹10 ÷ 1.10 = ₹9.09 and ₹110 ÷ 1.10² = ₹90.91. Price = ₹100. Duration = (1 × ₹9.09 + 2 × ₹90.91) ÷ ₹100 = 1.9091 years. Remember: Macaulay duration is a present-value-weighted average payment time.
Hint Weight each payment date by that payment’s present value. Common mistake: Using maturity or modified duration when Macaulay duration is requested.
XXI-B-018Practice bank se · 5
Who normally decides whether to exercise the embedded call in a callable bond?
The issuer holds the call right and may redeem the bond under its contractual terms. The investor therefore faces uncertainty over how long coupon payments continue. Remember: Callable and puttable bonds give exercise rights to different parties.
Hint Recall which party benefits from refinancing outstanding debt. Common mistake: Assuming the person holding the bond also holds every embedded option.
XXI-B-019Practice bank se · 6
A bond’s quoted clean price is ₹978 and accrued interest is ₹12. What settlement price applies, ignoring other charges?
The settlement price is ₹990 because the dirty price includes accrued interest. Working: clean price ₹978 + accrued interest ₹12 = ₹990. Remember: Distinguish quoted clean price from the amount including accrued interest.
Hint Account for coupon interest already earned since the last payment. Common mistake: Treating the quoted clean price as the complete settlement payment.
XXI-B-020