4-6 Bond pricing Example What is the price ofa 6% annual coupon bond with a$1,000 face value, which matures in 3 years? Assume a required return of 5.6%0 60 60 1.060 Py (1.056)(1.056)2(1.056)3 PV=$1,010.77 Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001
©The McGraw-Hill Companies, Inc.,2001 4- 6 Irwin/McGraw-Hill Bond Pricing Example What is the price of a 6 % annual coupon bond, with a $1,000 face value, which matures in 3 years? Assume a required return of 5.6%. $1,010.77 (1.056) 1,060 (1.056) 60 (1.056) 60 1 2 3 = = + + PV PV
4-7 Bond pricing Example(continued) What is the price of the bond if the required rate of return is 690? (1.06)(M3× 60 60 060 PV= 1.06) PV=S1.000 Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001
©The McGraw-Hill Companies, Inc.,2001 4- 7 Irwin/McGraw-Hill Bond Pricing Example (continued) What is the price of the bond if the required rate of return is 6 %? $1,000 (1.06) 1,060 (1.06) 60 (1.06) 60 1 2 3 = = + + PV PV
4-8 Bond pricing Example(continued) What is the price of the bond if the required rate of return is15 %0? 60 60 1.060 PV= (1.15)(1.5)3× 5)2(1.15) P=$794.51 Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001
©The McGraw-Hill Companies, Inc.,2001 4- 8 Irwin/McGraw-Hill Bond Pricing Example (continued) What is the price of the bond if the required rate of return is 15 %? $794.51 (1.15) 1,060 (1.15) 60 (1.15) 60 1 2 3 = = + + PV PV