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The change in the interest rate on the market has nothing to do with the book value of debt. The book value, the interest expense, the amortization of loss (if the bond is issued at discount) is always calculated using the interest rate at the time of bond issue.
To answer your question, you only need to calculate the book value using the 7% rate, with a maturity of 3 years (from the text it is understood this is an annual pay bond), on a bond of $10mil face value with a coupon of 6%:
N=3
I/Y=7
PMT=600,000
FV=10,000,000
CPT PV=9,737,568.4 That’s close to the second option.