14. 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, 4.5 percent; GE Capital, 7 percent; and Morgan Stanley, 11 percent; where: b. The bonds are selling for the following amounts Microsoft $942 GE Capital $733 Morgan Stanley $663 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 (ro) increased 2 percentage points or (2) decreased 2 percentage points? d. Explain the implications of your answers in parte in terms of interest rate risk, premium bonds, and discount bonds. e. Should you buy the bonds? Explain. a. If your required rate of return on the Microsoft bond is 4.5 percent, what is the value of the bond? $ (Round to the nearest cent.) If your required rate of return on the GE Capital bond is 7 percent, what is the value of the bond? $ (Round to the nearest cent.) If your required rate of return on the Morgan Stanley bond is 11 percent, what is the value of the bond? $ (Round to the nearest cent.) b. What is the expected rate of return for the Microsoft bond? % (Round to two decimal places.) What is the expected rate of return for the GE Capital bond? % (Round to two decimal places.) What is the expected rate of return for the Morgan Stanley bond? % (Round to two decimal places.) c. What would be the value of the Microsoft bond if your required rate of return to increased 2 percentage points from 4.5 percent to 6.5 percent? $ (Round to the nearest cent.) What would be the value of Microsoft bond if your required rate of return (r) decreased 2 percentage points from 4.5 percent to 2.5 percent? $ (Round to the nearest cent.) What would be the value of GE Capital bond if your required rate of return (s) increased 2 percentage points from 7 percent to 9 percent? STO (Round to the nearest cont.) https://demprod pearsoning convapwvtiprint/en-uwinance 1/2 What would be the value of GE Capital bond if your required rate of return (7) decreased 2 percentage points from 7 percent to 5 percent? (Round to the nearest cent.) What would be the value of Morgan Stanley bond if your required rate of return (ro) increased 2 percentage points from 11 percent to 13 percent? $ $ (Round to the nearest cent.) What would be the value of Morgan Stanley bond if your required rate of return (r) decreased 2 percentage points from 11 percent to 9 percent? S (Round to the nearest cent.) d. One important relationship between the bond value and the investor's required rate of return can be observed from the results in partc above: (Select from the drop-down menus.) If the required rate of return equals the bond's coupon rate, the bond will sell at (1) If the required rate of return is less than the bond's coupon rate, the bond will sell at (2) If the required rate of return exceeds the bond's coupon rate, the bond will sell at (3) e. Should you buy the bonds? (Select from the drop-down menus.) You (4) buy the Microsoft bonds because they are (5) You (6) You (8) buy the GE Capital bonds because they are (7) buy the Morgan Stanley bonds because they are (9) 1: Data Table (Click on the following icon in order to copy its contents into a spreadsheet.) Coupon interest rate Years to maturity MICROSOFT 4.75% 25 GE CAPITAL 3.75% 18 MORGAN STANLEY 4.25% 5 (1) O par a discount a premium (2) O a discount O par O a premium (3) O par a discount O a premium (4) O should not O should (5) O overvalued undervalued CEE ON (6) O should O should not (7) O undervalued overvalued (8) O should not O should (9) O undervalued O overvalued 14. 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, 4.5 percent; GE Capital, 7 percent; and Morgan Stanley, 11 percent; where: b. The bonds are selling for the following amounts Microsoft $942 GE Capital $733 Morgan Stanley $663 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 (ro) increased 2 percentage points or (2) decreased 2 percentage points? d. Explain the implications of your answers in parte in terms of interest rate risk, premium bonds, and discount bonds. e. Should you buy the bonds? Explain. a. If your required rate of return on the Microsoft bond is 4.5 percent, what is the value of the bond? $ (Round to the nearest cent.) If your required rate of return on the GE Capital bond is 7 percent, what is the value of the bond? $ (Round to the nearest cent.) If your required rate of return on the Morgan Stanley bond is 11 percent, what is the value of the bond? $ (Round to the nearest cent.) b. What is the expected rate of return for the Microsoft bond? % (Round to two decimal places.) What is the expected rate of return for the GE Capital bond? % (Round to two decimal places.) What is the expected rate of return for the Morgan Stanley bond? % (Round to two decimal places.) c. What would be the value of the Microsoft bond if your required rate of return to increased 2 percentage points from 4.5 percent to 6.5 percent? $ (Round to the nearest cent.) What would be the value of Microsoft bond if your required rate of return (r) decreased 2 percentage points from 4.5 percent to 2.5 percent? $ (Round to the nearest cent.) What would be the value of GE Capital bond if your required rate of return (s) increased 2 percentage points from 7 percent to 9 percent? STO (Round to the nearest cont.) https://demprod pearsoning convapwvtiprint/en-uwinance 1/2 What would be the value of GE Capital bond if your required rate of return (7) decreased 2 percentage points from 7 percent to 5 percent? (Round to the nearest cent.) What would be the value of Morgan Stanley bond if your required rate of return (ro) increased 2 percentage points from 11 percent to 13 percent? $ $ (Round to the nearest cent.) What would be the value of Morgan Stanley bond if your required rate of return (r) decreased 2 percentage points from 11 percent to 9 percent? S (Round to the nearest cent.) d. One important relationship between the bond value and the investor's required rate of return can be observed from the results in partc above: (Select from the drop-down menus.) If the required rate of return equals the bond's coupon rate, the bond will sell at (1) If the required rate of return is less than the bond's coupon rate, the bond will sell at (2) If the required rate of return exceeds the bond's coupon rate, the bond will sell at (3) e. Should you buy the bonds? (Select from the drop-down menus.) You (4) buy the Microsoft bonds because they are (5) You (6) You (8) buy the GE Capital bonds because they are (7) buy the Morgan Stanley bonds because they are (9) 1: Data Table (Click on the following icon in order to copy its contents into a spreadsheet.) Coupon interest rate Years to maturity MICROSOFT 4.75% 25 GE CAPITAL 3.75% 18 MORGAN STANLEY 4.25% 5 (1) O par a discount a premium (2) O a discount O par O a premium (3) O par a discount O a premium (4) O should not O should (5) O overvalued undervalued CEE ON (6) O should O should not (7) O undervalued overvalued (8) O should not O should (9) O undervalued O overvalued