Answer:
$1197.17185
Explanation:
ABC bond :
Par value of bond (FV) = 1000
Period (n) = 11 years
Coupon rate (r) = 8.5% annually
Discount rate (r) = 6% = 0.06
The coupon price = 8.5% of par value
Coupon price (C) = 0.085 * 1000 = 85
Current price of bond can be computed using the relation:
= C * [1 - 1 / (1 + r)^n] / r + (FV / (1 + r)^n)
85 * [1 - 1/(1+0.06)^11]/0.06 + 1000/(1 + 0.06)^11
85 * 7.8868745 + 526.78752
670.38433 + 526.78752 = $1197.17185