Maturity on the bond, Finance Basics

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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.

 


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