Answer Happy

Here are data on $1,000 par value bonds issued by Microsoft, GE Capital, and Morgan Stanley Assume you are thinking about buying these bonds. Answer the following questions a. Assuming interest is paid annually, calculate the values of the bonds if your required rates of return are as follows Microsoft, 3 percent GE Capital, 6.5 percent, and Morgan Stanley 115 percent, where ! b. The bonds are selling for the following amounts: Microsoft $1,215 GE Capital $625 Morgan Stanley $849 What are the expected rates of return for each bond? c. How would the value of the bonds change if (1) your required rate of return (o) increased 2 percentage points or (2) decreased 2 percentage points? d. Explain the implications of your answers in part c in terms of interest rate risk, premium bonds, and discount bonds e. Should you buy the bonds? Explain. a. If your required rate of return on the Microsoft bond is 3 percent, what is the value of the bond? (Round to the nearest cent)

(Click on the following icon in order to copy its contents into a spreadsheet.) Coupon interest rate Years to maturity MICROSOFT 4.00% 22 GE CAPITAL 3.00% 12 MORGAN ST 3.50% 4