How would value of the bonds change if rate of return given

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Reference no: EM131488301

Question: 1. (Bondholders' expected rate of return) You purchased a bond for $1,100. The bond has a coupon rate of 8 percent, which is paid semiannually. It matures in 7 years and has a par value of $1,000. What is your expected rate of return?

2. 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, 6 percent; GE Capital, 8 percent; and Morgan Stanley, 10 percent; where

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 (b) in terms of interest rate risk, premium bonds, and discount bonds.

e. Should you buy the bonds? Explain

Reference no: EM131488301

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