Answer:
$698,495
Explanation:
Price of the bond is the present value of all cash flows of the bond. These cash flows include the coupon payment and the maturity payment of the bond.
As per given data:
Face Value = $1,000,000
Coupon Payment = $1,000,000 x 3% x 6/12 = $15,000 semiannually
YTM = 11.00% annually = 5.50% semiannually
Numbers of period = 5 years x 2 = 10 periods
Formula:
Price of the Bond = C x [ ( 1 - ( 1 + r )^-n ) / r ] + [ F / ( 1 + r )^n ]
Placing values in the formula
Price of the Bond = 15,000 x [ ( 1 - ( 1 + 5.5% )^-10 ) / 5.5% ] + [ $1,000,000 / ( 1 + 5.5% )^10 ] = $113,064 + $585,431 = $698,495
