FREE Trial

In January 2017, Microsoft Corporation issued $17 billion of bonds in seven parts, with maturities ranging from

Question:

In January 2017, Microsoft Corporation issued $17 billion of bonds in seven parts, with maturities ranging from 2020 to 2057. The bond issue was rated Aaa by Moody's. Two of the bond offerings are described below.

Amount: $4 billion; Maturity: February 6, 2027; Coupon: 3.3%; Price: 99.31; Yield: 3.383%.

Amount: $2 billion; Maturity: February 6, 2057; Coupon: 4.5%; Price: 99.49; Yield: 4.528%.

a. Discuss the relation between the coupon rate, issuance price, and yield for the 2027 issue.

b. Compare the yields on the two bond issues. Why are the yields different when the bond ratings are the same?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Answer rating: 50% (14 reviews)

a Microsoft is offering bonds with a coupon stated rate of 33 when t...View the full answer


answer-question-section
Answered By
tutor-profile-image
Benard Ndini Mwendwa
I am a graduate from Kenya. I managed to score one of the highest levels in my BS. I have experience in academic writing since I have been working as a freelancer in most of my time. I am willing to help other students attain better grades in their academic portfolio. Thank you.
4.90+ 107+ Reviews 240+ Question Solved
Related Book For  book-img-for-question
Financial Accounting

Financial Accounting

ISBN: 9781618533111

6th Edition

Authors: Michelle L. Hanlon, Robert P. Magee, Glenn M. Pfeiffer, Thomas R. Dyckman

See More Books
Question Posted:
See More Questions

Related Video

Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.

Students also viewed these Business questions

Get It Right Or You Ll Regret It A Manager S Most Important Job Is Hiring And Developing A Great Team 1st Edition - ISBN: 979-8670305044 - Free Book