NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Fixed Income Securities (NISM XXI-A)
A Government of India security carries a coupon of 7% on a face value of Rs 100. If the bond is trading at Rs 100 in the market, what is its current yield?
The current yield is 7%. Current yield is the annual coupon divided by the market price, so Rs 7 divided by Rs 100 gives 7%. A bond trading at par always has a current yield equal to its coupon rate.
- A7.00%Correct
- B6.50%
- C7.50%
- D8.00%
Explanation
Current yield = annual coupon / market price = 7 / 100 = 7%. When a bond trades at par, the current yield equals the coupon rate. The other options do not follow from this relationship.
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