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 pays an annual coupon of 8% and is currently priced at Rs 800. What is its current yield?
The current yield is 10%. The annual coupon is 8% of Rs 1,000, which is Rs 80, and dividing this by the market price of Rs 800 gives 10%. The 8% figure is just the coupon rate based on face value.
- A8.0%
- B10.0%Correct
- C12.5%
- D6.4%
Explanation
Annual coupon = 8% x 1,000 = Rs 80. Current yield = coupon / market price = 80 / 800 = 10%. Using face value as the base gives 8%, which is the coupon rate and not the current yield. Dividing price by coupon gives 10 times, and 12.5% comes from 100/800 mistakes.
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