Activity Problem: Returns and Bond Ratings
Overview
In this activity, you will carry out calculations and research that help you understand how to evaluate the return and risk on investments.
Instructions
Answer the following questions in 1 to 2 page paper.
• You have just won the Strayer Lottery jackpot of $11,000,000. You will be paid in 26 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 26 annual payments based on your calculations and the information provided.
• Compare the information about risk and return indicated by different bond ratings. Support your answer with references to research.
• 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.
The response must include a reference list. One-inch margins, double-space, Using Times New Roman 12 pnt font and APA style of writing and citations.