Selling price of a bond: Problem type 1
On December 31, 2008, $140,000 of 9% bonds were issued. The market interest rate at the time issuance was 11%. The bonds pay on June 30 and December 31 and mature in 10 years. Compute the selling price of a single $1,000 bond on December 31, 2008. I understand how they Compute the semiannual interest payament : Bonds interest payament= Principal x Rate x Time = Face value x Bond interest rate x 6/12 = $1,000 x 9% x 6/12= $45. What I do not understand is how they computed the present value of principal: Present value of the principal = Face value of the bond (principal) x Present value of 1 factor (i = 0.055; n = 20)= $1,000 x 0.343 = $343. Can somebody tell me how they got the 0.343 as the present value of 1 factor?
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