A perpetual bond of ₹100 is currently selling for ₹95. The coupon rate is 13.5% and the appropriate rate of discount is 15%. Calculate the value of the bond. Should it be bought? What is its yield at maturity?

Given: Face Value (FV) = ₹100 Current Market Price (P 0 ) = ₹95 Coupon Rate = 13.5% Appropriate Rate of Discount (k d ) = 15% 1. Calculate the value of the bond (V B ): For a perpetual bond, the value is calculated as: V B = Annual Interest Payment / k d Annual Interest Payment = Coupon Rate * Face Value = 13.5% of ₹100 = ₹13.50 V B = ₹13.50 / 0.15 = ₹90 2. Should it be bought? The calculated intrinsic value of the bond is ₹90, while its current market price is ₹95. Since the intrinsic value (₹90) is less than the market price (₹95), the bond is overvalued. Therefore, it should not be bought. 3. What is its yield at maturity (YTM)? For a perpetual bond, YTM is equivalent to the current yield, which is calculated as: YTM = Annual Interest Payment / Current Market Price YTM = ₹13.50 / ₹95 YTM = 0.1421 or 14.21%