Answer:
The value of the bond which is the current price is $ 830.16
Explanation:
It is very vital to note that a rational investor values a bond today based on the cash flows payable by the bonds in future discounted to today's terms.
The future cash flows comprise of the yearly coupon interest of $60(6% *$1000) for 10 years as well as the repayment of the principal $1000 at the end of year 10
To bring the cash inflows today's term, we multiply them them by the discounting factor 1/(1+r)^N , where is the yield to maturity,r is 8.6% and N is the relevant the cash flow is received.
The discounting is done in attached spreadsheet leading to $ 830.16 present value today.
It is expected that the bond would be issued at discount as yield to maturity is higher than annual interest.
