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NISM Certifications · NISM-Series-XV: Research Analyst · Terminology in Equity and Debt Markets

A bond with a face value of Rs 1,000 pays an annual coupon of 8%. It is currently trading at Rs 800 in the market. 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 coupon rate of 8% is based on face value, not on the current market price.

  1. A8.0%
  2. B10.0%Correct
  3. C12.5%
  4. D6.4%

Explanation

Annual coupon = 8% x 1,000 = Rs 80. Current yield = coupon / market price = 80 / 800 = 10%. The 8% figure is the coupon rate (wrong base: face value). 6.4% divides 8% by 1.25 incorrectly, and 12.5% inverts the ratio (800/80... scaled).

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