CS Executive · Corporate Accounting and Financial Management · Security Analysis
A bond of face value ₹1,000 pays a coupon of 9% per annum. If the bond is currently priced at ₹900, what is its current yield (rounded to one decimal)?
The current yield is 10.0%. The annual coupon is ₹90 (9% of ₹1,000 face value), and current yield divides this coupon by the market price of ₹900, not by face value, giving 10%.
- A9.0%
- B10.0%Correct
- C11.1%
- D12.0%
Explanation
Annual coupon = 9% of ₹1,000 = ₹90. Current yield = coupon / market price = 90/900 = 10.0%. Using face value as the base gives 9%, which ignores the market price and is wrong.
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