Answer:
The investor will pay up to $ 985.68
Explanation:
The market value of the bonds will be the discounted value of the coupon payment and maturity at discount rate of 14% which the investor requires
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
Coupon payment: 1,000 face value x 12% = 120
time to maturity: 12 years bond issued 2 years = 10 years
rate 0.14
[tex]120 \times \frac{1-(1+0.14)^{-10} }{0.14} = PV\\[/tex]
PV $625.9339
[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]
Maturity 1,000.00
time 10 years
rate 0.14
[tex]\frac{1000}{(1 + 0.14)^{10} } = PV[/tex]
PV 269.74
PV coupon payment 625.94 + PM maturity $269.74 = $985.68