Please help me find the answer..?

Question

Which one of the following rates is the best measure of the inreased purchasing power you can realize from a bond investment?

a) current yield
b) nominal rate
c) real state
d) yield to maturity
e) yield to call

please try to explain why ... thanks a lot

Answer 1

I'm going to assume that choice C is actually "Real Rate."

My answer is C.

"Increased purchasing power" should flag you that somehow, inflation needs to be taken into you analysis (as inflation takes away purchasing power through time). Since real rate is the spread between "nominal rate" and "inflation," it effectively isolates the "purchasing power" of the bond from the interest yields.

Answer 2

None of the above. Nothing on your list accounts for LOSS of purchasing power to inflation.
To the best of my knowledge, c) is not a valid term related to bonds.
b) Is the interest rate stated on the bond. It is only the return if the bond is selling ad face value.
d) Is the effective rate if you hold the bond until the scheduled payoff date.
e) Is the effective rate if the company pays of the bond at the earliest date allowed an you hold the bond until that date.
a) Is the rate a bond selling at face value would have to pay in order to have the same interest payment amount.