1. Sally purchased a bond that pays an annual coupon of $85. The face value of the bond is $1000 and the current yield to maturity is 7%. She purchased the bond at $895. What is the bond's year to maturity (YTM)? Show all work.
2. One bond has a coupon rate of 5.8%, another a coupon rate of 8.4%.Bth bonds pay interest annually, have 9year maturities, and sell at a yield to maturity of 7.0%.
a. If their yields to maturity nest year are still 7.0%, what is the rate of return on each bond?
b. Does the higher coupon bond give a higher rate of return over this period?