Answer:
The market price will be $880.57
Explanation:
Interest amount for each year till 8 years will be $50 (1000*5%). Interest rate will be applied on par value. The cashflows of 8 years on account of interest and principal amount of $1000 would be discounted at 7%.
Working:
P.V of interest by using annuity formula:
$50 * (1-(1+7%)^-8)/7% = $298.57
P.V of principal amount : $1000 * (1+7%)^-8 = $582
Current price of bond = $298.57 + $582 = $880.57
