Final answer:
The value of the bond is $1,178.32, which is not one of the given answer choices.
Step-by-step explanation:
To calculate the value of the bond, we can use the present value formula, which takes into account the future cash flows and the prevailing market rate. In this case, the bond has a par value of $1,000 and pays a 10% coupon. After two years, the market rate for this bond is 8% annually. The present value of the coupon payments can be calculated as follows:
Year 1: $100 (10% of $1,000)
Year 2: $100 (10% of $1,000)
The present value of these cash flows using an 8% discount rate is:
Year 1: $92.59 ($100 / 1.08)
Year 2: $85.73 ($100 / 1.08^2)
The present value of the bond is then the sum of the present values of the coupon payments plus the present value of the par value:
$92.59 + $85.73 + $1,000 = $1,178.32
Therefore, the value of the bond is $1,178.32, which is not one of the given answer choices.