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    Selling Price of a Bond and Present Value of 1 Factor

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    On December 31, 2007, $490,000of 9% bonds were issued. The market interest rate at the time of issuance was 6%. The bonds pay interest on June 30 and December 31 and mature in 12 years.

    Compute the selling price of a single $1000 bond on December, 31 2007.

    What is the "present value of 1 factor"?

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    Solution Preview

    Please refer to the attachment for the solution.

    Present Value=(Future Value)/〖(1+i)〗^t
    where,i=annual interest rate
    The term 1/〖(1+i)〗^n is known as the Discount Factor.

    Since the bond's payment of the maturity ...

    Solution Summary

    The solution provides step by step method for the calculation of selling price of a bond and present value of 1 factor. Formula for the calculation and interpretations of the results are also included.