Respuesta :
Answer:
A. $ 748,714
Explanation:
This 10-year bond with semiannual coupon payment will have 20 coupon payments plus 1 par payment at maturity. The bond price issuing price is the present value of all coupon payments as well as par value. Let formulate the bond price as below:
Bond price = [(Coupon rate/2) x (Par value)]/[1 + (Market interest rate/2)] + [(Coupon rate/2) x (Par value)]/[1 + (Market interest rate/2)]^2 + ...+ (Coupon rate/2) x (Par value) + Par value]/[1 + (Market interest rate/2)]^20
Putting all the number together, we have:
Bond price = [(10%/2) x (950,000)]/[1 + (14%/2)] + [(10%/2) x (950,000)]/[1 + (14%/2)]^2 + ...+ (10%/2) x (950,000) + 950,000]/[1 + (14%/2)]^20 = 748,714
