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

A bond with a face value of ₹1,000 and a 10% annual coupon is trading at ₹800. What is its current yield?

The current yield is 12.5%. The annual coupon is ₹100 (10% of face value), and dividing it by the market price of ₹800 gives 12.5%. Using the face value as the base would wrongly give the coupon rate of 10%.

  1. A10.0%
  2. B8.0%
  3. C12.5%Correct
  4. D20.0%

Explanation

Annual coupon = 10% of 1,000 = ₹100. Current yield = 100 / 800 = 12.5%. Using face value as the base gives 10%, which is the coupon rate and not the current yield.

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