Answer: USD 4,349,780

## Explanation First, we need to calculate the discount factors from the zero-coupon bond prices: - **3-month bond**: - Market price = USD 97.8012 - Face value = USD 100 - Discount factor = 97.8012 / 100 = **0.978012** - **6-month bond**: - Market price = USD 95.2375 - Face value = USD 100 - Discount factor = 95.2375 / 100 = **0.952375** - **9-month bond**: - Market price = USD 92.3805 - Face value = USD 100 - Discount factor = 92.3805 / 100 = **0.923805** Now, apply these discount factors to the corresponding cash flows from the coupon bond: - **3-month cash flow**: USD 67,500 × 0.978012 = **66,015.81** - **6-month cash flow**: USD 67,500 × 0.952375 = **64,285.31** - **9-month cash flow**: USD 4,567,500 × 0.923805 = **4,219,479.34** **Total present value** = 66,015.81 + 64,285.31 + 4,219,479.34 = **4,349,780.46** This matches option C (USD 4,349,780). ### Key Concepts: - **Discount factors** represent the present value of $1 received at a future date - **Zero-coupon bonds** provide the purest measure of discount factors since they have only one cash flow - **Pricing coupon bonds** involves discounting each cash flow using the appropriate discount factor for its timing

Author: LeetQuiz .