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, 5.5 percent; GE Capital, 17.5 percent; and Morgan Stanley, 11.5 percent; where:

	Microsoft	GE capital	Morgan Stanley
Interest Rate	4.50%	6.75%	8%
Maturity	26	23	13

Microsoft $798

GE Capital $476

Morgan Stanley $690

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.