Final answer:
The yield to maturity (YTM) can be found using iterative methods or a financial calculator given the bond details provided. The price of the bond two years from now can be calculated by discounting the future cash flows at the constant YTM.
Step-by-step explanation:
To calculate the yield to maturity (YTM) on a bond, we must consider the current market price, the par value, the coupon rate, and how long the bond has until it matures. In this case, we have a bond with a par value of $1,000, a 5% annual coupon (which equals $50 per year), and 20 years to maturity that sells for $860. The YTM is the interest rate that makes the present value of all future cash flows equal to the bond's current price.
Unfortunately, there's no simple formula for this; it requires either a financial calculator, a spreadsheet, or iterative methods to solve. However, we can approximate it or use a financial calculator's YTM function to find the accurate rate.
Regarding the second part of the question, the price of the bond 2 years from now can be found by calculating the present value of the remaining cash flows (18 years of coupons plus the par value at maturity) at the constant YTM. Assuming the YTM doesn't change, you would discount the coupon payments and the repayment of the par value at the YTM to get the price 2 years from now.