Consider a bond that pays a sum of Rs $100$ after $2$ years.

$(5+5+10=20$ marks$)$

if the bond is sold today in the market for a sum of Rs $85,$ what is the yield to be received if the bond is held

till maturity?

Given this yield, and if the one year interest rate is $6\mathrm{.}5\%,$ calculate the expected one$-$year interest rate for the

next year. You can use the approximation method. $($Assume there is no risk premium$).$

Derive the expression for the present value of a bond of infinite maturity.