Match each bond in List-I with its current yield in List-II.
| List-I (Bond) | List-II (Current yield) | ||
| (A) | Face value Rs. 1,000, coupon rate 8%, market price Rs. 1,250 | (I) | 10% |
| (B) | Face value Rs. 500, coupon rate 9%, market price Rs. 450 | (II) | 6.4% |
| (C) | Face value Rs. 2,000, coupon rate 6%, market price Rs. 1,500 | (III) | 12.5% |
| (D) | Face value Rs. 1,000, coupon rate 10%, market price Rs. 800 | (IV) | 8% |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A)-(II), (B)-(I), (C)-(IV), (D)-(III)
The current yield is the yearly coupon (coupon rate × face value) as a percentage of the market price.
(A) Coupon = 80; \( \displaystyle\frac{80}{1250} \times 100 = 6.4\% \) → (II)
(B) Coupon = 45; \( \displaystyle\frac{45}{450} \times 100 = 10\% \) → (I)
(C) Coupon = 120; \( \displaystyle\frac{120}{1500} \times 100 = 8\% \) → (IV)
(D) Coupon = 100; \( \displaystyle\frac{100}{800} \times 100 = 12.5\% \) → (III)