Here are data on $$1,000$ par value bonds issued by Microsoft, GE Capital, and Morgan Stanley at the end of $2020.$ Assume you are thinking about buying these bonds. Answer the following

questions:

$1.$ Assuming the interest is paid annually, calculate the values of the bonds if your required rates

of return of Microsoft, GE Capital, and Morgan Stanley are $6\%,8\%,$ and $10\%,$ respectively.

In addition, the information on coupon rates and maturity is given in the following table.

$2.$ At the end of $2020,$ the bond prices are as follows:

a$.$ Microsoft $$1,100$

b$.$ GE Capital $$1,030$

c$.$ Morgan Stanley $$1,015$

What were the expected rates of return for each bond $($Hint: expected rate of return is

calculated based on bond prices, not the intrinsic value$)?$

$3.$ Identify which bonds are premium bonds and which bonds are discount bonds $($Hint: this can

be determined by comparing the intrinsic value to the par value or by comparing the

investors$$ required rate of return to the coupon rate. Details are provided in Chapter $7).$

$4.$ Estimate the value of the bond if your required rate of return $(1)$ increased $2$ percentage

points or $(2)$ decreased $2$ percentage points? What conclusions can you get?

$5.$ Should you buy these bonds? Explain $($Hint: should be under$-$priced bonds$).$

Microsoft GE capital Morgan Stanley

Coupon rate $7\mathrm{.}25\%4\mathrm{.}25\%4\mathrm{.}75\%$

Maturity $3010$