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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Fixed Income Securities (NISM XXI-A)

A 10-year bond with face value Rs 1,000 and a coupon rate of 7% is trading at Rs 950 in the market. What is its current yield, rounded to two decimals?

The current yield is about 7.37%. The annual coupon of Rs 70 is divided by the market price of Rs 950, not the face value. Since the bond trades below par, the current yield exceeds the 7% coupon rate.

  1. A7.00%
  2. B7.37%Correct
  3. C6.65%
  4. D7.89%

Explanation

Annual coupon = 7% x 1,000 = Rs 70. Current yield = 70/950 = 7.368%, about 7.37%. Using face value gives 7.00%, which is the coupon rate and not the current yield. 6.65% is 70/1,052, an incorrect base.

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