Here are data on $1,000 par value bonds issued by Microsoft, GE Capital, and Morgan Stanley at the end of 2012. Assume you are thinking about buying these bonds. Answer the following questions:

Assuming interest is paid annually, the values of the bonds if your required rates of return are as follows: Microsoft, 6%; GE Capital, 8%; and Morgan Stanley, 10%, where the coupon rates of Microsoft, GE Capital, Morgan St. are 7.25%, 4.25%, and 4.75% respectively. The YTM for Microsoft, GE Capital, Morgan St. are 30,10, and 5 respectively. With this information, the values of the bonds are shown below.

Microsoft-$1172.06

GE Capital - $748.37

Morgan St.-$800.98

2. At the end of 2012, the bonds were selling for the following amounts:

a. Microsoft $1,100

b. GE Capital $1,030

c. Morgan Stanley $1,015

The expected rate of return for each bond is:

Microsoft - 6.49%

GE Capital- 3.88%

Morgan Stanley- 4.41%

1. Identify which bonds are premium bonds and which bonds are discount bonds. Explain