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Homework 2
Renard Ward
Strayer University
PV = A * [ 1 - (1 + r) ^ (-n)] / r
Here:
A = 11000000 / 26 = 423076.92
n = 26
PV = 4,072,055.25
2. Triple-A bonds, or AAA bonds, are those considered the absolute safest by the bond
rating agencies responsible for determining their grade. The bond rating agencies are signaling
that they think default - that is, you not getting the money you were promised when you were
promised it is all but unthinkable except in the most remote of circumstances. The strength of
AAA ratings is simple. People or entities that have this rating do not have any trouble getting
credit. These people are in the top tier of the American public. The weakness would only entail
a medium grade assigned to a debt obligation by a rating agency to indicate an adequate ability t
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HOMEWORK 2
o pay interest and repay principal. However, adverse developments are more likely to impair this
ability that would be the case for bonds rated A and above. A BBB rating is the lowest rating a
bond can have and still be considered investment-grade. The strengths would be that people in
this group still have good credit. Lenders will still extend credit to people who fall into this
category. An additional strength is that you have room to grow and move up to the next rating.
Weaknesses of BBB credit rating is that it is not AAA. It should be noted that people who fall in
this bracket have some kind of financial trouble or at least in the past. Creditors will take a
harder look at you with this type of rating. You will have to spend capital as a down payment if
you have this credit rating. An obligor rated ‘CCC’ is currently vulnerable, and is dependent
upon favorable business, financial, and economic conditions to meet its financial commitments.
There are not many things that you can say that is positive about people in this rating. The good
thing is that you are not at the bottom of the totem pole. People in this bracket could straighten
out their credit. Being in this bracket does not mean panic. However, you should pay down your
debt. The weakness of this rating is that most companies will not extend credit to people who fall
in this range. People with D ratings had failed to pay one or more of its financial obligations
(rated or unrated) when it came due. A ‘D' rating is assigned when Standard & Poor's believes
that the default will be a general default and that the obligor will fail to pay all or substantially all
of its obligations as they come due. An ‘SD' rating is assigned when Standard & Poor's believes
that the obligor has selectively defaulted on a specific issue or class of obligations but it will
continue to meet its payment obligations on other issues or classes of obligations promptly.
These people do not fit the criteria to secure loans. This rating is the lowest of all the ratings.
There are no strengths to having a D rating. No one wants a rating so low. The weaknesses are
obvious. You are not creditworthy and will never get credit extended. These people mostly use
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HOMEWORK 2
cash to make purchases. There could have been economic conditions that might have led to