NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Fixed Income Securities (NISM XXI-A)
A Rs 1,000 face value bond with an 8% annual coupon is trading at Rs 800 in the market. What is its current yield?
The current yield is 10%. It is computed by dividing the annual coupon of Rs 80 by the current market price of Rs 800. Using the face value instead would give only the coupon rate of 8%, which ignores the discount at which the bond trades.
- A8%
- B10%Correct
- C12.5%
- D6.4%
Explanation
Current yield = annual coupon / market price = 80/800 = 10%. The 8% option uses face value as the base, which is the wrong base. The 6.4% option multiplies 8% by 800/1,000 instead of dividing.
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