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, 3 percent; GE Capital, 8 percent; and Morgan Stanley, 12 percent; where:

	Microsoft	GE Capital	Morgan Stanley
Coupon interest rate	5.00 %	4.00 %	4.50 %
Years to Maturity	29	12	9

b. The bonds are selling for the following amounts:

Microsoft $1,474

GE Capital $795

Morgan Stanley $507

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 c in terms of interest rate risk, premium bonds, and discount bonds.

e. Should you buy the bonds? Explain.