A bond paying a coupon of ₹90 a year now trades at ₹900. What is its current yield?
Current yield = annual coupon / market price = 90 / 900 = 10%.Current yield = Annual coupon / Market price
The concept: How an issuer chooses between equity and debt
Short-term needs (working capital, salaries) are met with short-term debt. Long-term needs can use equity or debt; governments only issue debt. The issuer weighs four factors: 1. Ability to pay regular interest: steady profits favour debt; uneven profits favour equity. 2. Willingness to dilute ownership: owners who do not want to share control prefer debt. 3. Collateral: service businesses with few assets find it hard to borrow and lean towards equity. 4. Period of need: short-term needs favour debt; long-term needs that lenders will not fund favour equity.