A bond with a par value of $1m is market trading for $1,125,000. The indenture provides for a special purchase arrangement that investors may pay $900,000 now and the remaining $225,000 by the end of year 2. This is a 5 year bond and which pays a fixed income of $425,000 at the end of year 1, end of year 3, and end of year 5 each. On reaching maturity, the bond will pay back the bond principal amount to bondholders in addition to the three coupons paid during its 5-year life span. Income proceeds received from the bond are reinvested at 12.5% p.a. compounded every six months. The interest rate on treasury bills is 7% and you require a risk premium of 5% to compensate for time and default risk.

Explaining each step, calculate the value of the bond.