You are considering the purchase of a $1,000 face value bond issued by
ExxonMobil. The bond pays 10 percent coupon interest per year, with
the coupon paid semiannually (i. e., $50. (= 1,000(0.10)/2) over the first
half of the year and $50 over the second half of the year). The bond
matures in 12 years (i. e., the bond pays interest (12 x 2 =) 24 times
before it matures). If the required rate of return (ru) on this bond is 8
percent (i. e., the periodic discount rate is (8%/2 = 4 percent), the market
value of the bond is calculated as follows: