Jim purchases $1,000 par value bonds with a 12 percent coupon rate and a 9 percent yield to maturity. Jim will hold the bonds until maturity. Thus, he will earn a return of ____ percent.

Question

Quizplus · Accepted Answer

The yield to maturity is the expected return for an investor holding a bond until maturity. Therefore, Jim will earn a return of 9 percent, which is the yield to maturity. The coupon rate is the interest payment made by the bond issuer to the bondholder, but it does not necessarily represent the return earned by the bondholder.

Jim Purchases $1,000 Par Value Bonds with a 12 Percent