Returns and Bond Ratings

Overview

In this activity, you will complete calculations and research that will help you understand how to evaluate the return and risk on investments.

Instructions

Respond to the following in a 1 to 2-page paper using the Week6 Activity – Returns and Bond Ratings Template [DOCX Download Week6 Activity – Returns and Bond Ratings Template [DOCX].

1. You have just won the Strayer Lottery jackpot of $11,000,000. You will be paid in twenty-six equal annual installments 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 compounding of interest.
   • Calculate the present value of the payments you will receive. Show your calculations using formulas in your paper or in an attached spreadsheet file.
   • Explain why there is a difference between the present value of the Strayer lottery jackpot and the future value of the twenty-six annual payments based on your calculations and the information provided.
     
     For your convenience, a week 6 Activity Worksheet [EXCEL] Download Week 6 Activity Worksheet [EXCEL]is provided to help you with the calculations in this assignment. It is highly recommended that you use it to complete the activity, but it is not mandatory. In the worksheet:

     • The available cells are shaded, and this is where you should enter the figures from the assignment questions.
     • The formulas will calculate automatically. You do not need to enter figures into the locked cells.
     • Note: If you would like to explore and review the formulas, you can unlock the sheet by going to the Review tab and selecting Unprotect Sheet.
2. Discuss the risk and return indicated by different bond ratings. Support your answer with references to your research.
3. • Use various bond websites to locate one of each of the following bond ratings: AAA, BBB, CCC, and D. Research the differences between the bond ratings, the required interest rates, and the risk. List the websites used as sources for this research.
   • Identify the strengths and weaknesses of each rating.

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