Suppose ABC corp issues a 3-year bond with coupon interest of 6%. Bond has $1,000 face value. A) Suppose an investor pays $948 for this bond. Show all the bond cash flows from the investor's perspective. Use a timeline to show the cash flows. B) How do you think investors decide how much they should pay for this bond? How did they decide that it was worth $948? Explain. Use the information in the following slide in your explanation. ELL $3.935 780 554 AFP 5.970 42. 10101001 Bond Price and Required Rate of Return If required rate of return (yield) declines If required rate of return (yield) increases C-Coupon Interest Expected at time t Bo-Bond Price -9.60 r-discount rate for the cash flow Cor required rate of return 3,867,300 +0:29 5.239,900 17.677 5.825.700 2.322.248 C B C C+FV (1+1) (1+) (+) (1+r) Required Rate of Risk Free Rate of Return Retum + Default Risk Premium 5,859,400 33.569 2.399.100 3,776 479.300 U3 yield curve 2.389 182.000 249 0 17.288 6003224 249300 42.913 100 40,573 00 0 0 0 0 0 16.273,100 93.345 82 4.700 385 45 247,000 1,033 00 38,265,200 183,197 800x600 600 81.029 Inflation premium + real interest rate + .... .. are