Present Value and Bond Ratings. Accounting, Finance, SPSS Coursework

Present Value and Bond Ratings
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Present Value and Bond Ratings
Strayer Lottery Jackpot = $11,000,000
Since it will be paid in twenty-six equal yearly installments = $11,000,000/26 = $423,076.92.
Installments start immediately with an interest rate of 9%, which is compounded monthly.
Since a year has 12 months, the following formula shows how the annual interest rate will be calculated ((1+r)12-1), where r = 9%.
Hence, ((1+0.09)12-1) = 9.38%.
Present Value of Installments (PVI) = Inst0 + Inst1/(1+r)1 + Inst2/(1+r)2 +………….+ Inst24/(1+r)24 + Inst25/(1+r)25, where Instn refers to the installment at nth time.
Since the installment starts immediately, it is the reason why we have taken year 25.
PVI = 423076.92 + 423076.92/(1+0.0938)1 + 423076.92/(1+0.0938)2 + …………….+ 423076.92/(1+0.0938)24 + 423076.92(1+0.0938)25
PVI = $ 4,453,793.
Bond ratings are crucial since they determine the financial strength of a firm that issues bonds to identify its ability to repay the principal and interest. In other words, they measure the creditworthiness of the government or corporate bonds. The three primary bond rating agencies are Moody’s, Standard and Poor’s (S&P), and Fitch. Although each agency has its grading system, the common bond ratings include AAA, BBB, CCC, and D. In particular, AAA means that a company is able to fulfill its financial obligations. BBB shows the moderate capacity of a firm to meet its financial commitments despite the company being more vulnerable to negative economic conditions. CCC means that an enterprise is vulnerable in fulfilling its financial obligations and that it is dependent on other favorable businesses. D entails a poor credit rating, which indicates that a company is likely to file for bankruptcy. The paper focuses on the differences, weaknesses, and strengths of the above bond ratings.
Credit ratings act as financial indicators through which investors use to make the right decision when investing in securities or bonds. AAA bonds are the safest and of the highest worth and quality (Kenny, 2018). Indeed, they have the least risks as compared to others and provides the maturity dates. However, AAA has the lowest yield. BBB credit ratings are the second-best from AAA. Specifically, it shows that a company or government can meet its financial obligations, and banks are permitted to invest in this kind of bonds. CCC is high-risk bonds when it comes to investments. They are also called junk bonds, and financial institutions are discouraged from investing in these types of bonds. D rating bonds have a small or no value at all.
AAA, BBB, CCC, and D bond ratings are different from each oth...