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,

6 percent; GE Capital,

17

percent; and Morgan Stanley,

9.5

percent; where:

LOADING...

.

b. The bonds are selling for the following amounts:

Microsoft

$975

GE Capital

$372

Morgan Stanley

$812

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

(rb)

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.

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