Birth:

Once upon a time, the treasurer of Mighty Corporation (MCO) decided to issue a bond (hereafter: The bond) The bond would have a 8-year life and promised that the holder of the bond would receive:

• Investors would pay $1000 to obtain the bond. In the future, they are promised to receive:
  • 8 annual payments of $25,
  • Along with the 8^th payment, MCO promised to return the principal of $1,000.

Question #2:

The bond is bought by an insurance company. One year passes, the bond has made its first coupon payment, so it is effectively a 7 year bond. The interest rate/yield-to-maturity on the bond falls to 1.5%.

• A) What is the Coupon Yield on the bond?
• B) What is the price of the bond?