Solved Bonds Previous Year Questions for RBI Grade B

Analyzing previous year questions of Bonds topic of Finance is crucial for aspirants of the RBI Grade B exam. It allows you to get familiar with the question types and difficulty level, allowing you to tailor your preparation strategy accordingly. 

Below, we have listed the questions asked in the previous RBI Grade B exams from the topic of bonds and provided explanations as well.

RBI Grade B Bond Questions

Here are the questions from the bond topic asked in the previous RBI Grade B exams. You will find the answers and explanations at the end.

Question 1 (RBI Grade B 2017)

There are various types of bonds, in the same regard, identify the bond which does not give any coupon payment, such bonds are called _________________? 

A. No Coupon Bond 

B. Annuity Bond 

C. Zero – Coupon Bond 

D. Debenture 

E. All of the above  

Click here for the explanation.

Question 2 (RBI Grade B 2017)

Which of the following is true about zero coupon Bonds?

A. They have fixed payments at regular intervals but no payment at maturity 

B. They have variable payments at regular intervals but no payment at maturity 

C. They have no payments till maturity but one final  payment at maturity 

D. They have fixed payment at regular intervals and one final  payment at maturity 

E. They have variable payment at regular intervals and one final  payment at maturity 

Click here for the explanation.

Question 3 (RBI Grade B 2017)

Calculate the price of a zero-coupon bond that is maturing in 3 years, has a par value of $1000, and a required yield of 8%.​? 

A. 793​ 

B. ​743​ 

C. ​753​​ 

D. 763​​ 

E. ​783 

Click here for the explanation.

Question 4 (RBI Grade B 2017)

Which of the following statements is true about Consoles? 

A. Consol bond is a form of British Government bond that has large maturity and that pays a fixed coupon. 

B. Consol bonds is a form of British Government bond that has lesser maturity and that pays a fixed coupon. 

C. Consol bond is a form of British Government bond that has no maturity and that pays a fixed coupon 

D. Consol bond is a form of British Government bond that has large maturity and that pays a floating coupon. 

E. Consol bond is a form of British Government bond that has lesser maturity and pays a floating coupon.

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Question 5 (RBI Grade B 2017)

In the most general sense, what is/are the assumption one has to make while calculating the YTM of the bond?

A. It assumes that the money which received in any of the years is not reinvested in subsequent years.

B. ​It assumes that the money which received in any of the years is reinvested in subsequent years​ at the rate equivalent to yield to maturity. 

C. ​​It assumes that the money which received in any of the years is reinvested in subsequent years​ at the discount rate.

D. ​​​It assumes that the money which received in any of the years is reinvested in subsequent years​ at the rate equivalent to cost of capital.

E. ​​None of the above 

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Question 6 (RBI Grade B 2019)

Which of the following is a characteristic of Bond and not a characteristic of Equity?   

A. Dilution of Ownership 

B. Fixed Income 

C. Variable Income 

D. Dividend 

E. None of the above  

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Question 7 (RBI Grade B 2019)

There are various types of bonds that are issued in the financial market, in the same regard, identify the type of bond,  which matures multiple times over a period of time and it can also be redeemed multiple times?

A. Serial Bond 

B. Multiple Bond 

C. Multi Period Bond 

D. Single Period Bon 

E. None of the above  

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Answer Key

Here is the answer key of the above bond questions asked in the RBI Grade B exams:

Before reviewing the explanation, calculate your score. If you struggled to answer these previous year questions on bonds correctly, it indicates that your understanding of bond fundamentals needs strengthening.

Click on the link, “RBI Grade B Bonds Concepts”, to reinforce your understanding of bond concepts.

Explanation

Here are the explanations of the above bonds previous year questions asked in the RBI Grade B exam:

Question 1 Explanation: Click here for the question
This question is based on the different types of bonds, and it’s the zero-coupon bonds, wherein no coupon is paid. Zero coupon or accrual bonds do not pay a coupon. Instead, these types of bonds are issued at a deep discount and pay the full-face value at maturity. 

Key features of zero-coupon bonds:

1. A zero-coupon bond is a debt security instrument that does not pay interest. 
2. Zero-coupon bonds trade at deep discounts, offering full face value (par) profits at maturity. 
3. The difference between the purchase price of a zero-coupon bond and the par value indicates the investor’s return. 

Question 2 Explanation: Click here for the question
Zero coupon or accrual bonds do not pay a coupon. Therefore, there is no question regarding the fixed or variable coupon to be paid. 

Key features of zero-coupon bonds:

1. A zero-coupon bond is a debt security instrument that does not pay interest. 
2. Zero-coupon bonds trade at deep discounts, offering full face value (par) profits at maturity. 
3. The difference between the purchase price of a zero-coupon bond and the par value indicates the investor’s return.

Question 3 Explanation: Click here for the question
This question is based on the pricing of the zero-coupon bonds and the formula which we need to use is given as –  

Wherein, n = number of payments   

• M = value at maturity, or par value 
• i = interest rate, or required yield 

In this question, 

• M = 1000
• N is 3 years 
• i = 8%  

Substitute the  values in the formula, 

Bond price = 1000/(1+0.08)^3  

Bond price = 1000/1.2597 = 793

Therefore, A is the correct answer.  

Question 4 Explanation: Click here for the question
Consol bond is a form of British government bond that has no maturity and that pays a fixed coupon. The value of a consol bond is equivalent to its face value. Consol is a type of a perpetual bond.  

• A perpetual bond, also known as a “consol bond” or “prep,” is a fixed-income security with no maturity date. 
• This type of bond is often considered a type of equity, rather than debt. 
• One major drawback to these types of bonds is that they are not redeemable. 

However, the major benefit of them is that they pay a steady stream of interest payments forever. Some of the notable perpetual bonds in existence are those that were issued by the British government.  

Question 5 Explanation: Click here for the question
YTM determines the return an investor gains if the bond is held onto till it matures. YTM comprises all interest payments including interest on interest received. 

YTM assumes that the security is purchased at the current market price and will be held until maturity. Moreover, the interest received is reinvested at a constant rate.

Question 6 Explanation: Click here for the question
Please be informed that a bond is a type of debt security, therefore on debt an investor is eligible to get a fixed rate of return.

Whereas in equity an investor is eligible to get fluctuating returns. The rest of all options represent the features of equity, and only option B represents the feature of a bond. 

Therefore, the correct answer will be option B. 

• By purchasing equity (stock) an investor becomes an owner in a corporation. Ownership comes with voting rights and the right to share in any future profits. 
• By purchasing debt (bonds) an investor becomes a creditor/lender to the company and there is generally less risk in owning bonds than in owning stocks but this comes at the cost of a lower return.  

Question 7 Explanation: Click here for the question
Serial bonds are issued by an organization with different maturity dates. This is done to enable the company to retire the bonds in installments rather than all together. It is less likely to disturb the cash position of the firm than if all the bonds were retired together.  

From the point of view of the bondholder, this gives him a chance to select a bond of the maturity date that would suit his portfolio. He may select a short-term maturity bond if it meets his needs or take a bond with a long-term maturity if he already has too many shorter-term investments. 

For example, a $1,000,000, ten-year serial bond will have $100,000 of bonds mature once a year for ten years.

Click on the link, “RBI Grade B Bond Practice Questions”, to practice more bond-related questions to improve your speed and accuracy.
Click on the link, “RBI Grade B Bond PYQs” to download the above-mentioned bond PYQs in a PDF format.