BOND CASE STUDY (2) – NISM XA

Mr. Ram Narayan is a conservative investor and has some amount of investment in Govt. Savings Scheme and in Fixed deposit where interest is 8.5%.

Now as per some one’s suggestion he wants to explore more in debt investment and want to invest in a bond but without compromising on returns what he is getting in fixed deposit

One bond which he is looking for a 9.5% annual bond of XYZ Ltd., which is available at Rs 1050 and maturity is 5 years. Face Value-1000 Rupees.

Ram Narayan has also invested in Government of India Bond (GOI) of coupon 8% and maturity after 10 years.

Required to answer the following questions based on the above data

As Ram Narayan wants return equal to his fixed deposit investment, He will be investing in bond of XYZ Ltd be a prudent decision.

At What Price Ram Narayan shall invest the money in bond so he can get equal returns to Fixed Deposit.

GOI Bond is giving 8% Coupon and have a maturity of 10 years what will be the impact of 50 Basis point upward Change in interest Rate by RBI on the Price of the bond.

What will be the impact on the Price of the bond of XYZ Ltd if yield goes up to 10.5% after one Year?.

Reserve Bank of India for controlling the liquidity system in the economy changes interest rate which has impact on bond Prices. What is correct regarding the interest rate change in these two above bonds perspective? .