Answer:
$1040.56
Explanation:
A bond is debt instrument issued by a borrower which promises to pay the holder regular interest for the holding period and the terminal value at the end of the period.
According to the discounted cash flow model, the value of an asset is the present value of the future cash flows arising from the assets discounted at the required rate of return.
Present value is the worth today of an amount expected in the future.The process of calculating the present value is called discounting
To calculate the price of this bond, we shall discount the future cash flows using the required return of 8% per annum, which is the same as 4% per six-month
Interest payment per 6 month = (9% × $1000)/2= $45
PV of interest payment = 45 × (1- (1.04)^(-2×5))/0.04)= 364.995
PV of redemption value = 1000 × 1.04^(-2× 5) = <u>675.56</u>
Price of the bond 1<u>040.56</u>