Mini Case pg. 248 Foundations of Finance 8th edition

Here is the data on $1000 par value bonds issued by microsoft, GE Capital, and Morgan Stanley at the end of 2012. Assume you are thinking about you biuying tyhese bonds as of jaunuary 2-13. Answer the following questions:

A.) Assuming interest in paid annually calculate the value of the bonds if your required rates of return are as follows: Microsoft: 6 percent; GE Capital , 8 percent: Morgan Stanley, 10 percent; where

Microsoft GE Capital Morgain Stanley

COUPON interest Rate: 5.25% 4.25% 4.75%

YEARS TO MATURITY': 30 10 5

b.) At the nd of 2008, the bonds were selling foe the following amounts:

Microsoft $1100

GE Capital $1030

Morgan Stanley $1015

What were the expected rates of return for each bond?

C.) How would the values of the bonds change if (1) your required rate of return (rb) increase 2 percent points or (2) decreased 2 percent ?

D.) Explainb the implications of your answers in part (b) in terms of interest rate risk; premiumbonds, and discount bonds,

E.) Shoukd you buy the bonds? Explain.