NISM Certifications · NISM-Series-XV: Research Analyst · Terminology in Equity and Debt Markets
In bond market terminology, what does the 'current yield' of a bond measure?
Current yield is the annual coupon payment divided by the bond's current market price. It shows the income return on the money invested today, ignoring capital gain or loss at redemption, unlike yield to maturity, which accounts for all future cash flows.
- AAnnual coupon divided by the current market price of the bondCorrect
- BAnnual coupon divided by the face value of the bond
- CDiscount rate that equates all cash flows to the market price
- DCoupon plus capital gain until maturity divided by face value
Explanation
Current yield = annual coupon / current market price. Dividing by face value gives the coupon rate, not current yield. The rate equating all cash flows to price is yield to maturity, which also reflects redemption value and time.
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