Final answer:
The yield to maturity of a bond purchased at par value is equal to the coupon rate, which is 10%. Its face value, typically $1,000, is what the bond will be worth at maturity. The current market value should also be $1,000 if purchased at par, and the bond's duration will consider the time value of money for all cash flows.
Step-by-step explanation:
The subject of this question is Business, specifically focusing on bond valuation and yield to maturity concepts typically covered in college-level finance courses. The answer to the student's question about buying a 12-year 10 percent annual coupon bond at par value comprises multiple parts.
a) The yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. Since the bond is bought at par value and the coupon rate is equal to the YTM, the YTM is therefore 10%.
b) The face value of a bond is the amount the issuer agrees to pay back at maturity. If not specified otherwise, the standard face value for bonds is $1,000.
c) The current market value of a bond bought at par value is simply the face value, which in most cases is $1,000, assuming no market fluctuations have occurred since the time of purchase.
d) The bond's duration is a measure of the sensitivity of the price of a bond to a change in interest rates. It's calculated as the weighted average of the present values of the bond's cash flows. Duration requires a more complex calculation that factors in the present value of all future coupon payments and the maturity value.