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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 ₹950. What is its current yield, to the nearest two decimals?

The current yield is 9.47%. The annual coupon is ₹90 (9% of ₹1,000 face value), and current yield divides this coupon by the market price of ₹950, not the face value, giving about 9.47%.

  1. A9.00%
  2. B9.47%Correct
  3. C10.53%
  4. D8.55%

Explanation

Annual coupon = 9% x 1,000 = ₹90. Current yield = coupon / market price = 90 / 950 = 9.47%. Using face value gives 9.00%, which is the coupon rate, not current yield. Dividing by 900 or inverting the ratio gives wrong figures.

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