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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 pays a 9% annual coupon and is currently trading at ₹900. What is its current yield, rounded to one decimal place?

The current yield is 10.0%. It is the annual coupon of ₹90 (9% of face value ₹1,000) divided by the market price of ₹900. Current yield uses market price as the base, not face value, so a discounted bond yields more than its coupon rate.

  1. A9.0%
  2. B10.0%Correct
  3. C11.1%
  4. D8.1%

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. Dividing the price by the coupon is also wrong.

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