Final answer:
To find the new yield to maturity, calculate the rate at which the present value of future cash flows ($56 annually for 7 years and $1,000 at maturity) equals the bond's current price ($1,064). This requires financial calculation or an iterative numerical method.
Step-by-step explanation:
To calculate the new yield to maturity (YTM) on the bond after the price has increased to $1,064, we need to consider the future cash flows the bond will generate and the current price of the bond. Because the bond has a coupon rate of 5.60% and a face value of $1,000, it will pay $56 in interest annually. There are 7 years left to maturity since a year has passed, and the bond will also repay the $1,000 face value at maturity.
The new YTM calculation involves finding the rate at which the present value of these future cash flows (7 payments of $56 plus the $1,000 at the end) is equal to the current price of the bond, which is $1,064. This requires using a financial calculator or an iterative process such as the Newton-Raphson method to compute the internal rate of return. However, the direct answer to the student's question is that they need to perform these calculations to find the new YTM expressed as a percentage to two decimal places.