A bond with face value ₹1,000 and an 8% coupon is bought for ₹800. What is its current yield, the coupon as a percentage of the price paid?

6.4%Correct answerYour answer8%Correct answerYour answer10%Correct answerYour answer20%Correct answerYour answer

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CorrectNot quiteAnswer C

Correct answer: C

The coupon is $8\% \times 1{,}000 = 80$ rupees a year.
Current yield $= \frac{80}{800} = 10\%$ , more than the coupon rate because the price is below par.

Worth noting

8% is the coupon rate, worked out on the face value, not on the price paid.

Ten questions from Perpetuity, Sinking Funds & Bonds, at your own pace.

Ten questions from Perpetuity, Sinking Funds & Bonds, at your own pace.

Explanation