The correct face value will be Option C ($20,000). A further solution id provided below.
Given:
Time,
t = 20 years
Rate,
r = 4.4%
Price
= $8,375
Now,
The yield will be:
= [tex]\frac{4.4}{2}[/tex]
= [tex]1.1[/tex] (%)
Time will be:
= [tex]20\times 2[/tex]
= [tex]40 \ periods[/tex]
As we know the formula,
⇒ [tex]Price \ of \ bond = \frac{Face \ value}{(1+\frac{r}{2} )^{n\times 2}}[/tex]
By substituting the values, we get
[tex]8375=\frac{Face \ value}{(1+\frac{0.044}{2} )^{20\times 2}}[/tex]
[tex]8375=\frac{Face \ value}{(1.022)^{40}}[/tex]
[tex]8375=\frac{Face \ value}{2.3880083}[/tex]
The face value will be:
[tex]Face \ value = 2.3880083\times 8375[/tex]
[tex]=20,000[/tex] ($)
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