NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Fixed Income Securities
A 10-year government bond with a face value of Rs 1,000 pays a 7% annual coupon. If the bond trades at Rs 1,000, what is its current yield?
The current yield is 7.0%. It equals the annual coupon of Rs 70 divided by the market price of Rs 1,000. Since the bond trades at par, the current yield matches the coupon rate.
- A6.0%
- B7.0%Correct
- C7.5%
- D8.0%
Explanation
Current yield = annual coupon / market price = 70 / 1,000 = 7%. When a bond trades at par, coupon rate, current yield and yield to maturity are all equal. The other options do not follow from the data.
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