The Yield to Maturity on a Bond Is the Interest

question 26

Multiple Choice

The yield to maturity on a bond is the interest rate you earn on your investment if interest rates do not change. If you actually sell the bond before it matures, your realized return is known as the holding period yield. Suppose that today you buy a coupon bond with 9 percent annual interest for $1,000. The bond has 12 years to maturity. Three years from now, the yield to maturity has declined to 7 percent and you decide to sell. What is your holding period yield?

• A) 8.84 percent
• B) 9.49 percent
• C) 10.96 percent
• D) 13.01 percent
• E) 12.83 percent

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Definitions:

Capital Gains

The increase in value of an investment over its purchase price.