Here are data on $ 1,000 par value bonds issued by Microsoft, GE Capital, and Morgan Stanley
Question:
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.
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...
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Related Book For
Foundations of Finance The Logic and Practice of Financial Management
ISBN: 978-0132994873
8th edition
Authors: Arthur J. Keown, John D. Martin, J. William Petty
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