Final answer:
To calculate the present value of the bond, we need to discount the future cash flows back to the present using the market interest rate. the present value of approximately $897. Therefore, the correct answer is D. $897
Step-by-step explanation:
To calculate the present value of the bond, we need to discount the future cash flows back to the present using the market interest rate. The formula to calculate the present value of a bond is:
Present Value = C / (1+r) + C / (1+r)^2 + ... + C / (1+r)^n + F / (1+r)^n
Where C is the annual coupon payment, r is the market interest rate, n is the number of years, and F is the face value of the bond.
For this specific bond, the coupon payment is $60 (6% of $1,000), the market interest rate is 12%, and the bond has a 10-year maturity. Plugging these values into the formula:
Present Value = $60 / (1+0.12) + $60 / (1+0.12)^2 + ... + $60 / (1+0.12)^10 + $1,000 / (1+0.12)^10
Calculating this expression gives us a present value of approximately $897. Therefore, the correct answer is D. $897.