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,

8 percent; and Morgan Stanley, 10 percent; where

MICROSOFT GE CAPITAL MORGAN STANLEY

Coupon interest rate 5.25% 4.25% 4.75%

Years to maturity

30 10

5

b. Assume that the bonds are selling for the following amounts:

Microsoft $1,100

GE Capital $1,030

Morgan Stanley $1,015

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 (b) in terms of interest rate

risk, premium bonds, and discount bonds.

e. Should you buy the bonds? Explain.

question 2. You have finally saved $10,000 and are ready to make your first investment. You

have the three following alternatives for investing the money:

A Microsoft bond with a par value of $1,000 that pays 4.2 percent on its par

value in interest, sells for $1,115, and matures in 4 years.

Southwest Bancorp preferred stock paying a dividend of $2.63 and selling for

$26.25.

Emerson Electric common stock selling for $60, with a par value of $5. The

stock recently paid a $1.88 dividend, and the firm's earnings per share has

increased from $2.27 to $3.78 in the past 5 years. The firm expects to grow at

the same rate for the foreseeable future.

Your required rates of return for these investments are 3 percent for the bond, 5 per

cent for the preferred stock, and 12 percent for the common stock. Using this infor

mation, answer the following questions.

a. Calculate the value of each investment based on your required rate of return.

b. Which investment would you select? Why?

c. Assume Emerson Electric's managers expect earnings to grow at 1 percent above

the historical growth rate. How does this assumption affect your answers to

parts (a) and (b)?

d. What required rates of return would make you indifferent to all three options?

question 3. You own 150 shares of Budd Corporation's

preferred stock at a market price of $22 per share. Budd pays dividends of $1.55.

What is your expected rate of return? If you have a required rate of return of 9 per

cent, should you buy more stock?

question 4. You are planning to purchase 100 shares of pre

ferred stock and must choose between Stock A and Stock B. Stock A pays an annual

dividend of $4.50 and is currently selling for $35. Stock B pays an annual dividend of

$4.25 and is selling for $36. If your required return is 12 percent, which stock should

you choose?

note pls also mention all formulas which you will apply