Jim, a private investor, 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

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The yield to maturity of 9% is the effective rate of return that Jim will earn by holding the bond until maturity. The coupon rate of 12% is the annual interest payment that Jim will receive. However, the price of the bond may fluctuate in the secondary market as interest rates change, which would affect the yield if Jim decided to sell the bond before maturity. But since Jim plans to hold the bond until maturity, his return will be the yield to maturity of 9%.

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