Accounting: Returns and Bond Ratings

Assignment
Name
Institution
Course
Date
ASSIGNMENT
Question 1
Solution
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.
Computation
Therefore
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)
Which is
$11,000,000 = (1+0.09) * P (((1.09)26 -1)/0.09)
P= $11,000,000/101.7
Answer is: $108,136.6
Calculation of Present Value
Formula for calculating the Present Value of annuity due
P * ((1 - (1 + r)-n)/r) * (1 + r)
Present Value of annuity due
$108,136.6 * ((1 - (1 + 0.09)-26)/0.09) * (1 + 0.09))
PV = $108,136.6 * 9.93* 1.09
Answer is: $1,170,320.7
Question 2
Solution
Bond rating is a method which is used to ration the credit value of a bond. It also corresponds the cost of borrowing of a user. Bond rating is used to determine the financial strength of an issuer or the capability of the issuer can pay the interest, bond, and principal within the stipulate time. During this process, the financial history assets, debts and expenses of the issuers are normally analyzed by the analysts. Bon rating are usually expressed from “AAA” which is ...