Choice "D" is correct. To determine the market price of a bond, the present value of the principal is added to the present value of all interest payments, using the market interest rate.
Choice "b" is incorrect. The stated interest rate is used to calculate the amount of interest payment, but not the market price of the bond.
Choice "a" is incorrect. The stated interest rate is used to calculate the amount of interest payment, but not the market price of the bond.
Choice "c" is incorrect. The market interest rate is used in calculating the price of the bond; however, all the interest payments must also be taken into consideration.
