StudentShare solutions

# The Value of a Vanilla Bond - Coursework Example

## Extract of sample The Value of a Vanilla Bond

Between the two companies it has been observed that Microsoft Corp. has the highest credit rating in the country. Due to the volatility of Aon’s operations and lower credit ratings, interest rates are higher, which makes the investment in Microsoft Corp. safer than that in Aon Corp, from an investor’s point of view. The Value of a Vanilla Bond A vanilla bond is a bond that has no underlying features, a fixed rate is implied and the bond is redeemable in full on maturity. In this paper, the vanilla bonds of two companies will be focused on to determine why the price of one company’s bonds differs from the price of the bond of the other company. The companies that are being focused for this paper are Microsoft Corp. and Aon Corp. According to the financial results reported by Microsoft Corp and Aon Corp. the companies had a total of \$11.9 billion and \$2.9 billion outstanding in debt. This debt component comprised of different loan notes, each with a varying range of maturity dates, out of them only the loan notes that fulfill the criteria of vanilla bonds will be considered for this paper. To calculate the present value of these bonds, each lone note will have to be dealt with separately. The list of the amount of these loans, their coupon rates, price and their maturity dates is mentioned below, and on its basis the present value of each note will be calculated. ...
October 2020 1,000 3.000% 105.7 941.85 2.27 February 2021 500 4.000% --- 459.79 --- June 2039 750 5.200% 122.0 612.653 3.88 October 2040 1,000 4.500% 113.6 835.607 3.73 February 2041 1,000 5.300% --- 805.150 --- TOTAL 10,750 10,043.51 AON CORP: Maturity Date Face Value (\$ Millions) Standard Coupon Rate Price Present value (\$ Million) yield to maturity September 2015 600 3.50% 105.0 589.609 2.07 September 2020 600 5.00% 112.1 570.808 3.37 September 2040 300 6.25% 124.8 248.854 4.67 TOTAL 1,500 1,409.271 As it can be seen, the bonds held by Aon Corp are generating higher yield to maturity than the bonds held by Microsoft Corp. Even though the time till maturity of the two companies is same for some bonds, still Aon Corp is charged with a higher rate of interest than Microsoft Corp. For the bonds that will mature till the years 2015, 2020 and 2040, the respective yields to maturity for Microsoft and Aon Corp. are 0.64, 2.27 & 3.73 and 2.07, 3.37 & 4.67 respectively. Thus it is obvious that the bonds issued to Aon Corp are receiving a better price than that of Microsoft Corp. According to Standard and Poor’s Rating Services and Moody’s Investor Service Inc. the Microsoft Corporate credit rating is AAA and Aaa respectively, whereas that of Aon Corp is BBB+ with a stable outlook and Baa2 with a negative outlook respectively. The increase in Microsoft’s credit ratings ensures lower borrowing costs and easy access to financial options for the company. Microsoft was assigned top rating right after the company made public a \$ 2 billion commercial paper program and according to S&P only five U.S non-financial companies hold AAA rating according to their standards (Linnane, 2008). The commercial paper of Microsoft Corp is rated A-1+ by Standard & Poor and P-1 by moody’s. ...Show more

## Summary

The Value of a Vanilla Bond Abstract A vanilla bond is a bond with no special features; a fixed rate of interest is charged on the bond, and on maturity the bond is deemed to be paid in full…
Author : kingantonietta
Save Your Time for More Important Things
Let us write or edit the coursework on your topic
"The Value of a Vanilla Bond"
with a personal 20% discount.
Grab the best paper

### Check these samples - they also fit your topic

Derivative Securities
It explains an existing interrelation between economic development and assets value. If we analyze any specific asset, for example stocks of a joint-stock company, we can surely emphasize, that economic successes of this company, its marketing divisions influence the price behavior.
24 pages (6000 words) Coursework
The Value of a Vanilla Bond
For this paper the focus is on Microsoft Corp and Aon Corp. Between the two companies it has been observed that Microsoft Corp. has the highest credit rating in the country. Due to the
4 pages (1000 words) Coursework
Vanilla Bond outline
In this thesis it has been observed that having better credit ratings not only lowers the interest costs for a company but it also provides financial flexibility to the company in case of future needs.
2 pages (500 words) Coursework
Earned value management
Work is considered to be earned after completion. It is used as a tool of management since it ensures that work is well planned in advance. Earned value
2 pages (500 words) Coursework
It should be duly noted that the greater the value-added is directly proportional to greater efficiency. Processing raw materials within the same location of extraction is more efficient and long sighted than exporting the same raw materials to be processed
1 pages (250 words) Coursework
Financial management
The coupon payments which are the interest payments that will be remitted to the bond-holder after a specific period of time for example six months and the face value of the bond refers to the amount of money that the bond holder will be paid at maturity
10 pages (2500 words) Coursework
Engineering/Value Analysis
Attainment of the mentioned elements calls for an examination of the functions of products and processes by considering alternative cost effective options to attain particular product
1 pages (250 words) Coursework
Fair value accounting
Under this kind of accounting method, corporations are liable to report loss in their balance sheets when fair of liabilities increases and that of assets decreases. Inclusion of such losses results
10 pages (2500 words) Coursework
Money & Payments / Present value
On the other hand, inflation referrers to a situation where the general prices of goods and services are increasing continuously for a significant period say one year. In other words, inflation leads to decline in money
2 pages (500 words) Coursework
Net Present Value
For this reason, pursuing this project may not be an optimal decision. However, despite the fact that, the projected capital project resulted in a negative NPV value, it may still be beneficial engaging. One of the factors that may increase NPV of a project is the
1 pages (250 words) Coursework
Hire a pro to write
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Apply my DISCOUNT
Click to create a comment
Let us find you another Coursework on topic The Value of a Vanilla Bond for FREE!