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Perpetuity, Sinking Funds & Bonds · Question 46 of 63

What is the current yield on the investor's ₹500 bond?

Question 46

MediumOriginal question

An investor buys a bond of face value ₹500 with an 8% annual coupon for ₹480, one year before it is redeemed at face value.

What is the current yield on the investor's ₹500 bond?

Options for question 46

Show the answer and explanation
CorrectNot quiteAnswer C

Correct answer: C

Explanation

  1. Current yield is the annual coupon as a percentage of the price paid.

  2. 40480×100≈8.33%\frac{40}{480} \times 100 \approx 8.33\%.

Worth noting

8% is the coupon rate, on the face value; the current yield divides by the price paid.

Concept
Current yield
Typical time
120 s
Your time
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The rule this testsBonds and their terms
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