NISM Certifications · NISM-Series-XV: Research Analyst · Terminology in Equity and Debt Markets
A bond with a face value of ₹1,000 and a coupon rate of 8% per annum is currently trading at ₹950 in the market. What is its current yield (rounded to two decimals)?
The current yield is 8.42%. It is the annual coupon of ₹80 divided by the market price of ₹950, not the face value. Dividing by face value would only give the coupon rate of 8%.
- A8.00%
- B8.42%Correct
- C8.95%
- D7.60%
Explanation
Annual coupon = 8% × 1,000 = ₹80. Current yield = coupon / market price = 80 / 950 = 8.42%. Using face value as the base gives 8.00%, which is the coupon rate, not the current yield.
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