Question

3. The following information for Six Flags bonds is listed on Wall Street Journal:

Maturity Date	Yield to Maturity	Current Yield	Coupon Rate
04/07/2020	8%	9.17%	10%

            If you purchase the bond today and hold it till maturity date, what is your annual return rate (APR) on the investment from now to April 2020?

            A)        Not enough information to calculate.

            B)         10%

            C)         9.17%

            D)        8%

Answer 1

If you hold the bond till maturity, APR is equal to YTM. Hence the answer will be D) 8%.

Yield to maturity means interest rate earned by an investor who buys the bond today at the market price, assuming that the bond will be held until maturity, and that all coupon and principal payments will be made on schedule.

Annual Return rate is the return that we get on the holding peruiod of the bond.

Since we are hoolding the Bond till maturity, hence the annual rate of return is equal to yield till maturity