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Running head: HOMEWORK 2

Homework 2

Renard Ward

Strayer University

Fin 534 Financial Management

Dr. Bassam Hamdan

October 29, 2018


1. What is the present value of the payment you will receive?

The formula for the present value:

PV = A * [ 1 - (1 + r) ^ (-n)] / r


A = 11000000 / 26 = 423076.92

r is the effective rate of 9% monthly compounded

r = (1 + 0.09/12) ^ (12) - 1 = 1.0938 - 1 = 0.0938

n = 26

Then, PV = 423,076.92 * [1 - (1+0.0938) ^ (-26)] / (0.0938)

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

how economic conditions can change your ratings. BBB is

a medium grade assigned to a debt obligation by a rating agency to indicate an adequate ability t

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

cash to make purchases. There could have been economic conditions that might have led to

someone being in this position.