Suppose a bond promises Rs 500 at the end of two years with no intermediate return. If the rate of interest is 5 per cent per annum what is the price of the bond?

Let price of bond be P

A = P (1 + r/100)^{n}

Where,

A = Amount = 500

n = Time = 2 yrs

r = Rate of Interest = 5%

500= P (1 + 5/100)^{2}

500= P (105/100)^{2}

500= P (21/20)^{2}

500= P (441/400)

500 = 1.1025P

P = 500/1.1025

P = 453.51

4