Quiz Space

Corporate Finance · Quiz 1 · 26 Oct 2025 · September 2025 term

Question 20: Consider a 20-year zero-coupon bond that promises to pay…

Question 20

+4 marksOne correct option

Consider a 20-year zero-coupon bond that promises to pay 1000 units after 20 years. The annualized interest rate is 2.5%. Suppose due to geopolitical tensions, the prevailing interest rate increases by 10 basis points to 2.6%. What would be the change in the value of the bond?

  1. A

    increases by 1.93%

  2. B

    decreases by 1.93%

  3. C

    increases by 1.20%

  4. D

    decreases by 1.20%

Show answer

Correct answer

  • B

    decreases by 1.93%

See the whole paperTake it as a mock test

Question 20 of 25 in the IIT Madras BS Corporate Finance (Corporate Finance) Quiz 1 paper sat on 26 Oct 2025, in the September 2025 term (IIT M DEGREE AN EXAM QDB2 26 Oct 2025). It carries 4 marks.

More questions from this paper

  1. Q1A zero-coupon bond with face value of Rs 5,000 matures in one year. Its price is Rs 4,500. What is the yield of the bon…
  2. Q2If you want to double your money at 5% annual rate of interest, how many years will it take?
  3. Q3You purchased an asset today for Rs 1,000. Suppose the asset earns an annual interest rate of 7% which is continuously …
  4. Q4Which rule helps an entrepreneur with limited capital get back invested money fastest in high interest environments?
  5. Q5If nominal GDP doubles, but real GDP remains unchanged, this means
  6. Q6The PVC stock is trading at Rs 300 today. PVC is expected to pay a dividend of Rs 20 per share next year. If the growth…
  7. Q7A bond pays 200 units in 1 year and 200 units in 5 years. What is the (simple) duration of the bond?
  8. Q8Figure question
  9. Q9If expected inflation equals nominal interest rate, then real interest rate is
  10. Q10An upward sloping yield curve shows:
  11. Q11Suppose there is a new project that demands an investment of Rs 10 lakh today and promises to pay off after two years. …
  12. Q12During the cleaning of house, you find an old sword that belonged to your grandfather. Your grandfather purchased the s…
  13. Q13ABC Corporation is looking to invest in one new project, and they have three options: Project-A is expected to generate…
  14. Q14ABC Corporation is looking to invest in one new project, and they have three options: Project-A is expected to generate…
  15. Q15Assume there are two periods and prices of consumption good are the same (and equal to 1) in both periods. You earn Rs …
  16. Q16What is the present value of an annuity that pays Rs 1,000 for next 25 years (beginning next year) and faces a cost of …
  17. Q17A typical consumer basket in the economy of Pangia Island consists of 1 unit of clothes, 3 units of food and 2 units of…
  18. Q18A typical consumer basket in the economy of Pangia Island consists of 1 unit of clothes, 3 units of food and 2 units of…
  19. Q19Manish runs a private school in his town. He wants to start a bus service for the students. He goes to the bank and ask…
  20. Q21On investigating the Indian yield curve, you find that annualized rate on 1-year bond (expiring in September 2026) is 4…
  21. Q22In the economy of Moldova, the nominal GDP is accounted as 15,000 units and the real GDP is accounted as 12,000 units i…
  22. Q23Which of the following is not a characteristic of a bond?
  23. Q24For a simple perpetuity, its present value increases if
  24. Q25Which of the following is a reason for preferring short-term bonds over long-term bonds?