Jim purchases $10,000 par value bonds with a 10 percent coupon rate and a 7 percent yield to maturity. Jim will hold the bonds until maturity. Thus, he will earn a return of ____ percent.

Question

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Jim will earn a return equal to the yield to maturity, which is 7 percent, because he plans to hold the bonds until maturity. The coupon rate is relevant for the amount of the annual coupon payment, but the yield to maturity is the overall return he will earn by holding the bond until it matures.

Jim Purchases $10,000 Par Value Bonds with a 10 Percent