felyndazcats
Oct 5, 2010, 12:35 PM
If the contract rate of interest is 12%, the time to maturity is 15 years and the market rate of interest is 10%.
ArcSine
Oct 7, 2010, 04:41 AM
Think of the bond as consisting of two components: (1) the annual (I assume; nothing was specified as to the coupons' frequency) coupon payments, and (2) the maturity payoff. (1) is equivalent to a 15-year annuity, $120 each payment; (2) is a single cash flow of $1K occurring 15 years from today.
The bond's current market price is the present value of (1) + the PV of (2). In both cases you'll be using 10% in your formulas. Take it from here?