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 Rs 1,000 pays a 9% annual coupon and is currently trading at Rs 900 in the market. What is its current yield?
The current yield is 10.00%. The annual coupon is Rs 90 (9% of the Rs 1,000 face value), and dividing this by the market price of Rs 900 gives 10%. The coupon rate is 9%, but current yield uses the market price as its base.
- A9.00%
- B10.00%Correct
- C11.11%
- D12.50%
Explanation
Annual coupon = 9% x 1,000 = Rs 90. Current yield = coupon / market price = 90 / 900 = 10.00%. Using the face value as the base gives 9%, which is the coupon rate, not the current yield.
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