Question
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
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, 8 percent; GE Capital, 17.5 percent; and Morgan Stanley, 9 percent; where:
.b. The bonds are selling for the following amounts: Microsoft $586 GE Capital $313 Morgan Stanley $885 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.
JU |uy pa Review pe gf g 88 MICROSOFT GE CAPITAL MORGAN STA Coupon interest rate 5.00% 7.00% 8.50% Years to maturity 27 25 14 (Click on the icon located on the top-right corner of the data table above in order to contents into a spreadsheet.) ra 2 0 N on bol of Done areStep by Step Solution
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