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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

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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 folio-wing questions: a. Assuming interest is paid annually, calculate the values of the bonds if your required rates of return are as follows Microsoft, 5.5 percent: GE Capital, 18 percent: and Morgan Stanley, 11 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 (1) your required rate of return (r_b) 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

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