You buy a SML Bond for $980. The bond has a face value of $1000 and an yearly coupon rate of 8%. There are five years left until maturity.
a. What is the yield to maturity on the bond?
b. At the end of 2 years, the price has risen to $1050. What is the yield to maturity based on the latest price?
c. Due to a special delivery by the stork, you decide to sell the bond at the end of year 2 for $1050. What was your return? Why does this differ from the yield to maturity? Suppose you do get the first 2 coupon payments.