Here are data on ?$1000 par value bonds issued by? Microsoft, GE? Capital, and Morgan Stanley....

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Finance

Here are data on ?$1000 par value bonds issued by? Microsoft,GE? Capital, and Morgan Stanley. Assume you are thinking aboutbuying these bonds. Answer the following? questions:
a. Assuming interest is paid? annually, calculate the values ofthe bonds if your required rates of return are as? follows:Microsoft, 6.5 ?percent; GE? Capital,16.5 ?percent; and Morgan?Stanley, 10 ?percent; where:
MICROSOFT
GE CAPITAL
MORGAN STANLEY
Coupon interest rate
?????
5.25%
????????
7.25?%
????
8.00?%
Years to maturity; Microsoft 31.
GE; 26
Morgan Stanley; 17
.
b. The bonds are selling for the following? amounts:
Microsoft ?$762
GE Capital ?$538
Morgan Stanley $938
What are the expected rates of return for each? bond?
c. How would the value of the bonds change if? (1) your requiredrate of return increased 2 percentage points or? (2) decreased 2percentage? points?
d. Explain the implications of your answers in part ?(c?) interms of interest rate? risk, premium? bonds, and discountbonds.
e. Should you buy the? bonds? Explain.

Answer & Explanation Solved by verified expert

4.4 Ratings (966 Votes)

Since the question has multiple parts and each part has multiple subparts I have answered the first 3 parts total 12 subparts with complete details Part a The value of the bonds can be calculated with the use of PV Present Value functionformula of EXCELFinancial Calculator The basic functionformula for PV is PVRateNperPMTFV where Rate Interest Rate here Required Return Nper Period PMT Payment here Coupon Payment and FV Future Value here Face Value of Bonds MICROSOFT Here Rate 65 Nper 31 PMT 1000525 5250 and FV 1000 Using these values in the above functionformula for PV we get Value of Microsoft Bond PV653152501000 83499 or 835 GE CAPITAL Here Rate 165 Nper 26 PMT 1000725 7250 and FV 1000 Using these values in the above functionformula for PV we get Value of GE Capital Bond PV1652672501000 44997 See Answer

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Transcribed Image Text

Here are data on ?$1000 par value bonds issued by? Microsoft,GE? Capital, and Morgan Stanley. Assume you are thinking aboutbuying these bonds. Answer the following? questions:a. Assuming interest is paid? annually, calculate the values ofthe bonds if your required rates of return are as? follows:Microsoft, 6.5 ?percent; GE? Capital,16.5 ?percent; and Morgan?Stanley, 10 ?percent; where:MICROSOFTGE CAPITALMORGAN STANLEYCoupon interest rate?????5.25%????????7.25?%????8.00?%Years to maturity; Microsoft 31.GE; 26Morgan Stanley; 17 .b. The bonds are selling for the following? amounts:Microsoft ?$762GE Capital ?$538Morgan Stanley $938What are the expected rates of return for each? bond?c. How would the value of the bonds change if? (1) your requiredrate of return increased 2 percentage points or? (2) decreased 2percentage? points?d. Explain the implications of your answers in part ?(c?) interms of interest rate? risk, premium? bonds, and discountbonds.e. Should you buy the? bonds? Explain.