Vanilla Bond outline Coursework Example | Topics and Well Written Essays - 500 words

Vanilla Bond outline - Coursework Example or proving this observation first of all the vanilla bonds of Microsoft and Aon Corp were analyzed, with the focus being on determining the coupon rate, price and the present value of the bonds. Secondly it was observed that Microsoft has a better credit rating as compared to that of Aon Corp. And in the end it was observed that due to its highest credit rating in the country, Microsoft is considered to be a better investment option for the banks and the investors. The main reason for selecting Microsoft and Aon Corp is the difference between their credit ratings. Microsoft is rated at the highest level where as Aon Corp is suffering from a gradually deteriorating credit rating. These companies were selected so as to determine how the different credit ratings influence these companies. Companies are rated on the basis of their financial results, their history of borrowing and repayments, and the extent of their assets and liabilities, so that their credit worthiness could be determined. Credit ratings show that Microsoft has better credit ratings as compared to Aon Corp. Such higher credit ratings increase the company’s access to financial markets and also increase its financial flexibility. 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 because of their lower credit ratings. 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. Banks and Investors depend greatly on the credit ratings of the companies while making investment decisions. A company with a lower credit rating will imply that