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CSEET · Economic and Business Environment · Indian Financial Markets

A bond with face value Rs 100 and coupon 8% is trading in the market at Rs 80. What is its current yield, ignoring any redemption gain?

The current yield is 10%. The bond pays a coupon of Rs 8 a year on face value Rs 100, and dividing this Rs 8 by the market price of Rs 80 gives 10%, higher than the coupon rate because the bond trades at a discount.

  1. A10%Correct
  2. B8%
  3. C6.4%
  4. D12.5%

Explanation

Annual coupon is 8% of Rs 100 = Rs 8. Current yield = coupon divided by market price = 8/80 = 10%. Using face value gives 8%, which ignores the price. 6.4% multiplies 8% by 80%. 12.5% inverts the ratio (100/80 misapplied).

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