Question: Here are data on 1 000 par value bonds issued

Here are data on $ 1,000 par value bonds issued by Microsoft, GE Capital, and Morgan Stanley at the end of 2012. Assume you are thinking about buying these bonds as of January 2013. 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, 6 percent; GE Capital, 8 percent; and Morgan Stanley, 10 percent; where
b. At the end of 2008, the bonds were selling for the following amounts:
Microsoft $ 1,100
GE Capital $ 1,030
Morgan Stanley $ 1,015
What were the expected rates of return for each bond?
c. How would the value of the bonds change if (1) your required rate of return (rb) increased 2 percentage points or (2) decreased 2 percentage points?
d. Explain the implications of your answers in part (b) in terms of interest rate risk, premium bonds, and discount bonds.
e. Should you buy the bonds? Explain.

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  • CreatedSeptember 11, 2015
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