To solve, you calculate the Present Value using these criteria:
Future Value = -$1,000
Annual Payment = -$100 ($1,000 X 10%)
Number of Periods = 10
Interest Rate = 6%
I used the PV function in Excel, and then double checked the answer on my HP12C financial calculator. The answer comes back as:
The reason that the market value is greater than the $1,000 par value is because the bond pays an annual payment of 10%, but similar bonds are only paying 6%, thereby making this bond more valuable, as it pays an extra $40 per year for the 10 year period.
35 years of accounting experience