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

Question

Quizplus · Accepted Answer

The yield to maturity represents the total return that the investor will earn if they hold the bond until maturity. Therefore, Devin will earn a return of 9 percent, which is the yield to maturity on the bond. The coupon rate of 12 percent is simply the annual interest payment that Devin will receive from holding the bond, but it does not represent his total return.

Devin Is, a Private Investor, Purchases $1,000 Par Value Bonds