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Here are data on $ 1 , 0 0 0 par value bonds issued by Microsoft, GE Capital, and Morgan Stanley. Assume you are thinking
Here are data on $ 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, percent; GE Capital, percent; and Morgan Stanley, percent; where:
b The bonds are selling for the following amounts:
What are the expected rates of return for each bond?
c How would the value of the bonds change if your required rate of return increased percentage points or decreased percentage points?
d Explain the implications of your answers in part in terms of interest rate risk, premium bonds, and discount bonds.
e Should you buy the bonds? Explain.
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