- +44 141 628 6080
- [email protected]

Find expected rates of return for each bond

Here are data on $1,000 par value bonds issued by Micorsoft, Ford, and Xerox at the end of 2008. Assume you are thinking about buying these bonds as of January 2009. Answer the following questions:

a. Calculate the values of the bonds if your required rates of return are as follows: Microsoft, 6 percent; Ford, 15 percent; Xerox, 10 percent; where

MICROSOFT FORD XEROX

Coupon interest rate 5.25% 7.13% 8.00%

Years to maturity 30 25 16

b. At the end of 2008, the bonds were selling for the following amounts:

Microsoft $1,009.00

Ford $ 610.00

Xerox $ 805.00

What were 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.

Expected delivery within 24 Hours

1941207

Questions

Asked

3,689

Active Tutors

1437681

Questions

Answered

**
Start Excelling in your courses, Ask a tutor for help and get answers for your problems !! **

Â©TutorsGlobe All rights reserved 2022-2023.

## Q : Find the expected return on a portfolio

A stock has a beta of 1.25 and an expected return of 14%. A risk free asset currently earns 2.1%.