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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Fixed Income Securities

A 10-year bond with a face value of Rs 1,000 pays an annual coupon of 8%. Its current market price is Rs 800. What is its current yield?

The current yield is 10%. It equals the annual coupon of Rs 80 divided by the market price of Rs 800. Coupon rate of 8% is measured on face value, whereas current yield is measured on the price actually paid.

  1. A8.0%
  2. B10.0%Correct
  3. C12.5%
  4. D20.0%

Explanation

Current yield = annual coupon / market price. Annual coupon = 8% x 1,000 = Rs 80. Current yield = 80/800 = 10%. Using 8% confuses coupon rate with current yield, which ignores the discount price.

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