Returns And Bond Ratings
You have just won the Strayer Lottery jackpot of $11,000,000. You will be paid in 26 equal annual instalments 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 interest compounding. What is the present value of the payments you will receive?
I calculated the PV to be $4,453,793.24. I will show my work, both long and short way below.
In your own words and using various bond websites, locate one 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.
“When corporations and governments issue bonds, they typically receive a credit rating on the creditworthiness of the debt from each of the three major rating agencies: Standard & Poor’s, Moody’s, and Fitch. These ratings incorporate a variety of factors, such as the strength of the issuer’s finances and prospects, and they allow investors to understand how likely a bond is to default or fail to make its interest and principal payments on time.” (Kenny)
AAA bonds are the highest rated, and they are the safest bonds to have. The high rating is due to consistently paying investors. However, even though an AAA bond is consistently paying out, the bond has a relatively low yield rate. You won’t make money hand over fist with an AAA-rated glue, but you will not lose money in a blink of an eye. AAA-rated bonds are for someone who wants to kick their feet up and watch their money come in slowly and steadily without worrying.
BBB bonds are still investment-grade but are at the lower scale of that definition. BBB bonds will not be as safe as AAA bonds, but you can expect them to meet their debt payment obligations. BBB bonds are slightly more at risk of economic changes than AAA bonds.
CCC bonds are bonds with a very speculative grade. A CCC bond is risky because it will most likely default, and there is considerable doubt that interest will be paid or the principal repaid. CCC bonds are highly influenced by economic change. They could also be classified as junk bonds.
D-rated bonds are the worst out there. They are junk bonds. They are the most risky and are given out by companies that will likely default and not pay investors interest or principal payments.
References
Kenny, T. (2018). The Scoop on Bond Credit Ratings. Retrieved October 31, 2020, from https://www.thebalance.com/what-are-bond-credit-ratings-417074
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Question 
You have just won the Strayer Lottery jackpot of $11,000,000. You will be paid in 26 equal annual instalments 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 interest compounding. What is the present value of the payments you will receive?
Returns And Bond Ratings
In your own words and using various bond websites, locate one 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.