**Answer:**

**present value of bond = $1042.96**

**Explanation:**

**given data**

spot rates for six months = 1%

spot rates for one and = 1.1%

spot rates for one and half years = 1.3%

price = $1000

coupon bond = 4.25%

time = 6 month

**solution**

we get here first price on bond paid that is

coupon paid = $1000 × 4.25 × 0.5 = **$21.25**

we get here present value of 6 month and 1 year and 1 and half year

present value = ..............1

present value of 6 month = = **20.23**

present value of 1 year = = ** 21.01 **

present value of 1 year and half year = =** 20.97 **

and

now we get present value of par value in 1 and half year

present value of par value in 1 and half year =

present value of par value in 1 and half year =

present value of par value in 1 and half year =** 980.75**

so

present value of bond will be as

present value of bond = 20.23 + 21.01 + 20.97 + 980.75

**present value of bond = $1042.96**