The Government of India issues a 5-year Sovereign Gold Bond (SGB) at an issue price of 5,000 per gram. An investor, Mr. JK, has purchased 200 grams…

CA Final · Advanced Financial Management · PYQS · May 2026
The Government of India issues a 5-year Sovereign Gold Bond (SGB) at an issue price of 5,000 per gram. An investor, Mr. JK, has purchased 200 grams SGB under this scheme. The bond carries a coupon rate of 2.5% per annum, calculated as simple interest on the initial investment amount, with interest payable annually. At the end of five years, the bond will be redeemed at the prevailing market price of gold. The annual interest received is taxable at the investor's applicable marginal income tax rate. Any capital gain arising on redemption is taxable at 20% after considering the benefit of indexation. The inflation rate during the holding period is assumed to be 4% per annum. From the information given above, choose the correct answer to the Question Nos. 1 to 3:
(A) ₹ 25,000 and 2.25%
(B) ₹ 17,500, and -2.25%
(C) ₹ 17,500 and 1.75%
(D) ₹ 17,500 and -1.75%

Suggested Answer and Working Notes:

Correct Answer: Option (B)

₹ 17,500, and -2.25%

Topics: Mergers, Acquisitions and Corporate Restructuring, Interest Rate Risk Management

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