financial accounting 138

Discussion 1:

Respond with 200 words: The difference between a zero-coupon bond and a bond that pays coupon payments is that with a zero-coupon bond, over time the holder of the bond receives the face value of the bond when it reaches maturity (Langager, 2020). In contrast, normal bonds pay interest over the lifetime of the bond and also repays the principal amount when the bond reaches maturity.

It would appear that going with the bond that pays coupon payments would be a better choice than the zero-coupon bond, but it is important to acknowledge that zero-coupon bonds carry less risk than regular bonds, and also that zero-coupon bonds usually have higher returns than regular bonds with the same maturity due to the shape of the yield curve (Langager, 2020). Because of these reasons, it may be more worth it to go with the zero-coupon, long-term bond. (David)

Respond with 200 words: Putting aside my disappointment in receiving a bond as a gift, if I had to choose I would go with the zero-coupon long term bond. One of the main draws to a zero-coupon long term bond over a short term bond is that the former will typically yield higher returns when looking at a normal yield curve. According to Investopedia, long term zero coupon bond investors gain the difference between the price they pay for the bond and the amount they receive at the bond’s maturity. The amount they receive can be significant due to the fact that zero-coupon long term bonds are typically bought at a huge discount. Such a discount yields higher returns in the long run.

A few risks involved with the zero coupon long term bond is that they have a rather high interest rate risk. Due to this sensitivity, a zero coupon bond could fall as much as 30% in a single year. In addition to this, there is no guarantee that the bond will rise when stocks do poorly. Lastly, the largest risk factor involved with these bonds is that they are highly affected by inflation. Investopedia states that “Persistently high inflation is often accompanied by repeated interest rate hikes, which would cause significant losses for zero-coupon Treasury bonds.” (Lucas)

Discussion 2:

Respond with 200 words: An individual financial assessment, for the most part, determines one’s credit score the higher the number, the more dependable you appear to a lender. The lower your score, the more trouble you will confront. In any case, it’s not simply a lender who may assume your credit score in to account overviews and studies have discovered that an individual’s credit assessment can influence whether you are ready to lease a loft. One of the ways credit affects a person’s credit score. The substance of a decent score builds up that you’re acceptable at making your exceptional installments and other money-related commitments expeditiously. Be that as it may, a low financial assessment will welcome on a higher rate attributable to the dangers engaged with conceivable deferred installments or non-installment down the line while paying for a mortgage. The contrast somewhere in the range of 5% and 5.5% gathers to massive measures of cash in premium which could have been forestalled. Much like an individual credit assessment, an organization’s credit score reflects how likely the organization is to reimburse its debt. Normally, this obligation appears as corporate securities. For a company, appraisals depend on current business conditions including net revenues and income development. The lower the rating, the higher the yield since investors should be made up for the additional risks. Likewise, the more profoundly appraised a bond the more unlikely it is to default. Higher appraised bonds, known as investment-grade bonds, are seen as more secure and progressively stable speculations . Such contributions are attached to publicly-traded companies and government elements that boast uplifting viewpoints. This may influence companies to open more branches, thus expanding and up taking more employees. (Christley)

Respond with 200 words: As a consumer your personal credit rating is very important. As we all know if you have a poor credit rating, you will most likely not get the loans you seek. Further, if you do obtain the loan, it will cost you more. This is because you are a higher risk borrower as signaled by your credit rating. Thus, a bond rating is similar. According to the website www.investopedia.com , ” A bond rating isa letter grade assigned to bonds that indicate their credit quality” (Chen 2019). More so, this letter rating is assigned as the bond issuers financial strength and ability to pay on time. In the same sense this means purchasing the bond might be a higher risk. When we borrow our ability to pay back and on time is assessed. A bond issuer is assessed the same. This is important for company’s to consider in its financial choices as consumers of bonds. Can and will the bond issuer will pay back the interst and principal in a timely fashion to the bond holder. (Steve)