Final answer:
The price of the bond is $1,045.35 if the interest rate is 5%. Therefore, the correct option is b. $1,045.35.
Step-by-step explanation:
The price of a bond can be calculated by finding the present value of its future payments. In this case, the bond pays $50 one year from today and $1,050 two years from today. To calculate the present value, we need to discount these future payments back to the present time using the interest rate. Since the interest rate is 5%, we can use the formula:
Bond price = (Future payment 1 / (1 + interest rate)¹) + (Future payment 2 / (1 + interest rate)²)
Using this formula, the bond price comes out to be $1,045.35, so the correct answer is b. $1,045.35.