a) SK Pharmaceuticals has 7% coupon bonds (par= $1,000) on the market with 22 years to maturity. The bonds make semiannual payments and currently sell for 97% of the par. What is the current yield on SK’s bonds? The YTM? The effective YTM? If you expect the YTM to remain unchanged, what is the expected price of the bond next year?
b) You bought a bond (par= $1,000 four years ago for $1020 per bond. The bond is now selling for $ 970. It also paid $ 80 in interest per year (i.e. 8% coupon rate), which you reinvested in the bond. Calculate the realized rate of return (annualized) earned on this bond. Interest is paid semiannually.