Present Value of Payments Assigment

Introduction

P=Periodic payment=$ 11,000,00026=$ 423,077N=number of periods=26*12=312I=interest rate=9%12=0.75%PV of annuity due=P+P*1-(1+r)-(n-1)r

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PV of annuity due=$ 423,077+$ 423,077*1-(1+0.0075)-(312-1)0.0075PV of annuity due=$ 51,310,711.65Bond Ratings

The capital letters A to D are used in Standard & Poor, with AAA denoting the best rating to D denoting the worst (Scottrade, 2017). The high rating bonds, i.e. AAA bonds are known as investments while high yield bonds, i.e. the D bonds are known as low-grade bonds (non-investment grade bonds).

AAA bond rating

This is the highest rating assigned to investment bonds. They have low defaulting risk hence a high likelihood of the insurer to meet the payment obligations. However, they have low yields due to the low risk levels, e.g. the Johnson & Johnson (J&J) bonds (Moody's, 2017).

BBB bond rating

These bonds offer the adequate capacity to meet the payment obligations. They are prone to the effects of changing circumstances and intense economic conditions, i.e., its ability to meet the payment obligations weakens during adverse economic conditions. An example is the Kohls' bonds.

CCC bond rating

These bonds have an increasing risk of default in payment. The capacity of the issuer to pay depends on the financial performance of the business as well as the prevailing economic conditions. During bad times it may be cumbersome for the company to settle its payments. An example is the Hornbeck offshore company's bonds.

D bond rating

These are also known as junk bonds or high yield bonds. They are bonds that have either defaulted on their payments or have breached the terms of the bond contract. The rating is also issued in the event of the issuer goes bankrupt. An example is the Guggenheim BLSG high yield corporate bond (Guggenheim, 2017).

References

Moody's rated J&J's notes Aaa; stable outlook. (2017, February 28). Retrieved April 28, 2017, from https://www.moodys.com/research/Moodys-rated-JJs-notes-Aaa-stable-outlook--PR_362645

Guggenheim BSJL. (n.d.) Guggenheim BulletShares 2021 High Yield Corporate Bond ETF. Retrieved April 28, 2017, from http://gi.guggenheiminvestments.com/products/etf/bsjl/performance

Bond Ratings | Scottrade. (n.d.). Retrieved April 28, 2017, from https://www.scottrade.com/knowledge-center/investment-education/investment-products/bonds/measuring-bond-value/bond-ratings.html

Brigham, E. F., & Ehrhardt, M. C. (2017). Financial management (15th ed.). Mason, OH: South-Western Cengage Learning.