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:

Assuming interest is paid annually, calculate the values of the bonds if your required rates of return are as follows: Microsoft, 4 percent; GE Capital,8 percent; and Morgan Stanley, 13 percent; where: .

	MICROSOFT	GE CAPITAL	MORGAN STANLEY
Coupon interest rate	4.25%	3.25%	3.75%
Years to maturity	22	12	8

.b. The bonds are selling for the following amounts:

Microsoft $979

GE Capital $733

Morgan Stanley $ 628

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.

. If your required rate of return on the Microsoft bond is 4 percent, what is the value of the bond?

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