Corporate finance: A company has an outstanding zero-coupon bond with face value

Question

Corporate finance:

A company has an outstanding zero-coupon bond with face value $10,000,000 and maturity 2 years. If the economic situation in the next two years is good the value of the company's assets wili grów at an annual rate of I0% while if the situation is bad the assets annual growth will be -5%. The two situations are equally likely to happen. The current value of the firm's assets is $10,500,000. The bond bears no systematic risk and the risk free return is 2.89%.

What is the market price of the bond?

Answer should be $9,198,754. I tried but not arriving at this answer. Help needed

You are correct. I tried and never arrived at it. Could you send me the answer and working ignoring what i have written

Explanation / Answer

Details Amount Probability Amount Future recoverable Value of Bond, If Economic Situation is Good=Face value of Bond               100,00,000.00 0.5           50,00,000.00 Future recoverable Value of Bond, If Economic Situation is Bad=10500000*.95*.95                 94,76,250.00 0.5           47,38,125.00 Expected future Value A           97,38,125.00 Present Value=Expected Future Value *DF of 2.89% in second year DF         B 0.944612451 Market Price           91,98,754.12

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