Answer:
The current Price of the bond will be 1,006.20
Explanation:
We have to calculate the present value of the bonds cash flows at a 8.5% rate
Present value ofthe interest service:
[tex]C * \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
[tex]100 * \frac{1-(1+.085)^{-10} }{0.085} = PV\\[/tex]
PV = $563.9183
Present Value of the principal
[tex]\frac{Principal}{(1 + rate)^{time} } = PV[/tex]
[tex]\frac{1,000}{(1 + 0.85)^{10} } = PV[/tex]
PV = $422.2854
Now we sum both concepts
422.2854 + 563.9183 = 1006.2037 = 1,006.20
