Answer:
The correct answer is $5,412,000.
Explanation:
According to the scenario, the given data are as follows:
Coupon rate = 4%
Coupon rate (semiannual) (C) = 2% of $1000 = $20
Time period = 10 years
Time period (semi annual ) (t) = 20
Face value (F) = $1,000
Yield rate = 12%
Yield rate (semiannual) (r) = 6%
Number of bonds =10,000,000 ÷ 1,000 = 10,000 bonds
So, we can calculate the market value by using following formula:
Market value = C × [tex]\frac{1 - \frac{1}{(1+r)^{t} } }{r} + \frac{F}{(1+r)^{t} }[/tex]
By putting the value, we get
= $20 × [tex]\frac{1 - \frac{1}{(1+0.06)^{20} } }{0.06} + \frac{1000}{(1+0.06)^{20} }[/tex]
So, Market value = $541.20
Now, The total debt value = Market value × Number of bonds
= $541.20 × 10,000
= $5,412,000