Answer:
The correct answer is $1,000.
Explanation:
According to the scenario, the given data are as follows:
For one year
Bond pay (p) = $50
Time period (t)= 1 year
Interest rate (r) = 5%.
So, Price of bond for 1st year = p ( 1 + r)^-t
By putting the value, we get
Price of bond for 1st year = $50 ( 1 + 0.05)^-1 = $47.62
For Second year
Bond pay (p) = $1,050
Time period (t)= 2 year
Interest rate (r) = 5%.
So, Price of bond for 2nd year = p ( 1 + r)^-t
By putting the value, we get
Price of bond for 2nd year = $1,050 ( 1 + 0.05)^-2 = $952.38
So, Total price of the bond = Price of bond for 1st year + Price of bond for 2nd year
= $47.62 + $952.38
= $1,000
