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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Fixed Income Securities

A bond with a face value of Rs 1,000 and a 9% annual coupon is trading at Rs 900. Which statement about this bond is correct?

The current yield is about 10% (Rs 90 on Rs 900), and the yield to maturity is higher than this. A discount bond adds a capital gain as the price moves up to the face value at maturity, raising the total yield above the current yield.

  1. AIts yield to maturity is below 9%
  2. BIts current yield is exactly 9%
  3. CIts current yield is about 10% and its yield to maturity is higher than the current yieldCorrect
  4. DIts yield to maturity equals its current yield

Explanation

Current yield = 90/900 = 10%. The bond is at a discount, so the investor also gains the Rs 100 pull-to-par at maturity, making YTM higher than the 10% current yield. The other options contradict this.

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