Returns and Bond Ratings Accounting, Finance, SPSS Essay (Essay Sample)
Returns and Bond Ratings
Answer the following questions in a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both.
1. You have just won the Georgia Lottery jackpot of $11,000,000. You will be paid in 26 equal annual installments beginning immediately. If you had the money now, you could invest it in an account with a quoted annual interest rate of 9% with monthly compounding of interest. What is the present value of the payments you will receive?
2. In your own words and using various bond websites, locate one of each of the following bond ratings: AAA, BBB, CCC, and D. Describe the differences between the bond ratings. Identify the strengths and weaknesses of each rating.
From the above question, it is evident that the installments will be paid immediately. Therefore when computing, we will deal with annuity due than the ordinary annuity. It is also very important to determine the periodic payment so that it will be easier to calculate the present value of the payment being received.
Future value = 11,000,000.00
Annual interest rate = 9%
Installments = 26
Y = 1
C/y = 12
Calculation of the future value of annuity due
Formula: Future Value of annuity due
(1 + r) * P (((1 + r) n -1)/r)
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