True or False: The current yield refers to the yield if the bond is held until its final principal payment.

The correct answer is that the statement is false. The current yield of a bond does not represent the yield if the bond is held until its final principal payment; instead, it is calculated based on the bond's annual coupon payment divided by its current market price. This measure provides a snapshot of the return an investor would expect to earn if the bond were purchased at its current price and the investor held it for the next year, while the payment of the principal happens at maturity.

Holding a bond until maturity involves considering the total return that includes not only the coupon payments received during the life of the bond but also the return of principal at maturity. This total return is more accurately represented by the yield to maturity (YTM), which takes into account all cash flows associated with the bond.

Current yield is a more immediate evaluation of the bond's return based on current market conditions, but it does not capture the full picture of the investment's performance over its entire term. Thus, it's important to distinguish between the current yield and the yield to maturity when discussing the expected returns of bonds.