Analyzing Debt Terms, Yields, Prices, and Credit Ratings Reproduced below is the debt footnote from the May 31, 2019, 10-K report of Oracle Corporation.

$ millions	May 31, 2019	May 31, 2018
Fixed-rate senior notes:
$1,500, 2.375%, due January 2019		1,500
$1,750, 5.00%, due July 2019	1,750	1,750
$2,000, 2.25%, due October 2019	2,000	2,000
$1,000, 3.875%, due July 2020	1,000	1,000
1,250, 2.25%, due January 2021	1,393	1,446
$1,500, 2.80%, due July 2021	1,500	1,500
$4,250, 1.90%, due September 2021	4,250	4,250
$2,500, 2.50%, due May 2022	2,500	2,500
$2,500, 2.50%, due October 2022	2,500	2,500
$1,250, 2.625%, due February 2023	1,250	1,250
$1,000, 3.625%, due July 2023	1,000	1,000
$2,500, 2.40%, due September 2023	2,500	2,500
$2,000, 3.40%, due July 2024	2,000	2,000
$2,000, 2.95%, due November 2024	2,000	2,000
$2,500, 2.95%, due May 2025	2,500	2,500
750, 3.125%, due July 2025	836	868
$3,000, 2.65%, due July 2026	3,000	3,000
$2,750, 3.25%, due November 2027	2,750	2,750
$500, 3.25%, due May 2030	500	500
$1,750, 4.30%, due July 2034	1,750	1,750
$1,250, 3.90%, due May 2035	1,250	1,250
$1,250, 3.85%, due July 2036	1,250	1,250
$1,750, 3.80%, due November 2037	1,750	1,750
$1,250, 6.50%, due April 2038	1,250	1,250
$1,250, 6.125%, due July 2039	1,250	1,250
$2,250, 5.375%, due July 2040	2,250	2,250
$1,000, 4.50%, due July 2044	1,000	1,000
$2,000, 4.125%, due May 2045	2,000	2,000
$3,000, 4.00%, due July 2046	3,000	3,000
$2,250, 4.00%, due November 2047	2,250	2,250
$1,250, 4.375%, due May 2055	1,250	1,250
Floating-rate senior notes:
$500, three-month LIBOR plus 0.58%, due January 2019		500
$750, three-month LIBOR plus 0.51%, due October 2019	750	750
Revolving credit agreements and other borrowings:
$2,500, LIBOR plus 0.50%, due June 2018		2,500
Other borrowings due August 2025	113	113
Total senior notes and other borrowings	56,342	60,927
Unamortized discount/issuance costs	(202)	(282)
Hedge accounting fair value adjustments(1)(4)	27	(26)
Total notes payable and other borrowings	56,167	60,619
Notes payable and other borrowings, current	4,494	4,491
Notes payable and other borrowings, noncurrent	$51,673	$56,128

Future principal payments (adjusted for the effects of the cross-currency swap agreements associated with the January 2021 Notes and July 2025 Notes) for all of our borrowings at May 31, 2019, were as follows:

$ millions
Fiscal 2020	$4,500
Fiscal 2021	2,631
Fiscal 2022	8,250
Fiscal 2023	3,750
Fiscal 2024	3,500
Thereafter	33,984
Total	$56,615

Reproduced below is a summary of the market values as of August 10, 2019, of select Oracle bonds. Source: Markets Insider (https://markets.businessinsider.com/bonds).

Maturity Date	Amount $	Price	Coupon %	Yield to Maturity %
July 2020	$1,000	109.47	3.875	2.613
April 2038	$1,250	136.78	6.5	3.36
July 2039	$1,250	120.47	6.125	3.45

(a) What is the amount of debt reported on Oracles May 31, 2019, balance sheet? $Answer million What are the scheduled maturities for this indebtedness?

2020	Answer	million
2021	Answer	million
2022	Answer	million
2023	Answer	million
2024	Answer	million
Thereafter	Answer	million

Why is information relating to a company's scheduled maturities of debt useful in an analysis of its financial condition?

Excessive payments in any one year can create a cash flow problem, especially if the debt cannot be refinanced.

We prefer to see liabilities coming due in the near future if interest rates are expected to decline; but deferred if interest rates are expected to increase.

The information relating to a company's scheduled maturities is not important.

We are looking to see if all payments are approximately equal. If so, the expected drain on cash flow will be constant.

(b) Oracle reported $2,082 million in interest expense in the notes to its 2019 income statement. In the note to its statement of cash flows, Oracle indicates that the cash portion of this expense is $2,059 million. What could account for the difference between interest expense and interest paid?

The difference arises from the amortization of any discounts or premiums on the debt.

The difference arises because the amount of interest paid is based on prevailing interest rates that change frequently.

The difference arises because the amount of interest expense is based on prevailing interest rates that change frequently.

There is never any difference between interest expense and interest paid.

(c) Oracles long-term debt is rated A1 by Moodys, A+ by S&P Global Ratings, and A+ by Fitch. What factors would be important to consider in attempting to quantify the relative riskiness of Oracle compared with other borrowers?

Credit rating agencies assess companies' default risk by focusing primarily on macroeconomic factors such as the projected level of interest rates.

Credit rating agencies assess companies' default risk by gauging the level of debt in relation to the companies' operating cash flow, profitability ratios, and the ratios for long-term creditworthiness.

Credit rating agencies assess companies' default risk by comparing the target company against companies that have defaulted on their debt.

Credit rating agencies assess companies' default risk by focusing primarily on non-quantitative measures such as the quality of the company's management team.

(d) Oracles $1,250 million 6.5% notes traded at 136.78 as of August 10, 2019. What is the market value of these notes on that date? (Round your answer to the nearest whole number.)

$Answer million

How is the difference between this market value and the $1,250 million face value reflected in Oracles financial statements?

The balance sheet is unaffected, but the income statement reflects increases (decreases) in interest rates as increases (decreases) in interest expense.

The current market value of the notes is reflected in the balance sheet as an increase (decrease) in liabilities if rates have declined (increased).

Only the statement of cash flows is affected as cash is needed to retire the liabilities when they mature.

The current market value of the notes is not reflected in Oracle's balance sheet.

What effect would the repurchase of this entire note issue have on Oracles financial statements?

There would be no effect on the financial statements if Oracle were to repurchase these notes because the repurchase would be made at book value.

Oracle is prohibited from repurchasing the notes before maturity and, thus, no financial statements would be affected.

Only the balance sheet and statement of cash flows would be affected as they reflect the cash payment and consequent reduction of liabilities.

If Oracle were to repurchase these notes, the difference would be reported as a loss in the current income statement.

What does the 136.78 price tell you about the general trend in interest rates since Oracle sold this bond issue?

The price of the bonds is unrelated to the general level of interest rates, only the rate of interest on Oracle's debt. Because that hasn't changed, other causes must be considered.

Because these notes have increased in value subsequent to their issuance, market interest rates must have decreased.

The market price of the debt relates only to investor's expectations about the general condition of the airline industry and is unaffected by the level of interest rates.

Because these notes have declined in value subsequent to their issuance, market interest rates must have increased.

(e) Examine the yields to maturity of the three bonds in the table above. What relation do we observe between these yields and the maturities of the bonds? Also, explain why this relation applies in general.

The table generally reveals the following relation: the longer the time to maturity, the higher the yield. Typically, there is an increasing relation between the term period of the debt and its yield.

The table generally reveals the following relation: the shorter the time to maturity, the higher the yield. Typically, there is an inverse re