NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Fixed Income Securities
Which of the following statements about a bond's current yield is correct?
Current yield equals the annual coupon divided by the current market price of the bond. It ignores capital gains or losses at redemption and the time value of money, unlike yield to maturity, and differs from the coupon rate, which uses face value.
- AIt equals annual coupon divided by current market priceCorrect
- BIt equals annual coupon divided by face value
- CIt equals the internal rate of return of all cash flows
- DIt includes the capital gain on redemption
Explanation
Current yield = annual coupon / market price. Coupon divided by face value is the coupon rate. The IRR including redemption is yield to maturity, which accounts for capital gain or loss.
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