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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 Rs 1,000 pays an annual coupon of 9% and is currently priced at Rs 1,200. What is its current yield?

The current yield is 7.5%. The annual coupon is Rs 90 (9% of the Rs 1,000 face value), and dividing by the market price of Rs 1,200 gives 7.5%. Using face value as the denominator would wrongly give the coupon rate.

  1. A9.00%
  2. B10.80%
  3. C7.50%Correct
  4. D8.25%

Explanation

Annual coupon = 9% x 1,000 = Rs 90. Current yield = 90 / 1,200 = 7.5%. Using the face value as the base gives 9%, which is the coupon rate rather than the current yield.

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