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    felyndazcats's Avatar
    felyndazcats Posts: 1, Reputation: 1
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    #1

    Oct 5, 2010, 12:35 PM
    How Do I Compute the market price of a $1000 bond?
    If the contract rate of interest is 12%, the time to maturity is 15 years and the market rate of interest is 10%.
    ArcSine's Avatar
    ArcSine Posts: 969, Reputation: 106
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    #2

    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?
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