This Bankers Tutorial article is independent educational material. Examples are illustrative, and changing rules or examination requirements should be checked at the official source.
01 / UNDERSTANDING
Understand the idea
Tell the story of two investors comparing the same bond bought on different days. Let each state the purchase price before discussing return. Add a sale before maturity to show why identical coupons do not produce identical investment outcomes, giving readers a practical reason to distinguish contractual income from market valuation.
02 / UNDERSTANDING
The concept in context
A conventional fixed-rate bond specifies coupon payments and a principal repayment. The coupon rate relates the coupon to face value, while current yield relates the annual coupon to the purchase price. Neither concept should be confused with a price quotation or the more comprehensive yield-to-maturity calculation.
Yield to maturity is a discount rate that equates the price with the promised cash flows under stated conventions. It is not a guarantee of the investor's realised return, which depends on factors such as sale price, payment performance and reinvestment. A precise discussion identifies the purchase price, holding period and cash-flow assumptions.
03 / UNDERSTANDING
A worked learning case
A fictional bond pays an annual coupon of 6 units on a face value of 100. One learner buys it for 100 and another for 90. Both receive the same promised coupon, but their current yields differ. The class then includes the eventual principal repayment to explain why current yield alone does not measure yield to maturity.
ORIGINAL EDUCATIONAL PRACTICE
Try it before you check.
Does buying a fixed-coupon bond at a lower price change its promised coupon amount?
Show the answer and reasoning
No; it changes the relationship between the purchase price and the cash flows.
The contractual coupon follows the bond's terms, not the price paid by a new holder in the market. A lower purchase price raises the coupon relative to that price, all else equal. A complete holding-period return still needs the remaining payments, any sale or redemption value and relevant reinvestment assumptions.
Two traps to watch for.
- Calling the coupon rate the investor's guaranteed realised return.
- Using current yield as if it included every remaining cash flow.
YOUR TOPIC-SPECIFIC LEARNING MAP
Turn understanding into practice
Calculate coupon income from face value and stated terms.
Compare current yields at two fictional purchase prices.
List the assumptions needed for a holding-period return.
Explain the idea, apply it to a new situation, then check what changed in your reasoning.
BANKERS TUTORIAL · SOURCE NOTES
Keep the source alongside your notes.
Official links provide subject context and authoritative reference material. This guide’s explanation, scenario and question are original Bankers Tutorial learning content.
- iibf.org.in https://iibf.org.in/caiib-certified-associate-IIBF
- iibf.org.in https://iibf.org.in/documents/RulesSyllabus/2026/FlagshipCourses/60%20-%20CAIIB_24.07.25_Change_Final%20Website_23.02.2026.PDF
- m.rbi.org.in https://m.rbi.org.in/commonman/english/scripts/FAQs.aspx?Id=711
For CAIIB preparation, check the current official notice before relying on changing dates, rules or examination requirements.
