XXXXXXXXXXwordsUnderstanding how to properly value a vanilla bond (a plain bond) is essential for...

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XXXXXXXXXXwordsUnderstanding how to properly value a vanilla bond (a plain bond) is essential for finance. Using the following Web site(https://www.auctions.zionsdirect.com/), find 3 different funding structures. Describe for each structure: security type, term, and yield. Furthermore, take a look at each of their offering documents, and provide a short description of the information found in the documentation.Why do the different types of bonds get different rates? Explain your answer.What makes each of the different structures different? Explain your answer.What does the rate given say about the credit rating for each issuer? Explain your answer.How does credit rating affect the rate given to the issuer? Explain your answer.Which structure has the best credit rating based on the yield given to each structure? Explain your answer.What is the credit rating supposed to tell you? Explain your answer.Which bond is receiving the best price? Explain your answer.Why does having a good credit rating matter to the issuer? Explain your answer.

David · Accepted Answer

Different types of bonds get different rates. And from the perspective of market economy, 
this difference in rates is quite justified.  Treasury bonds have different rate than other U.S. 
government bonds because; the yields of treasury bonds are often the lowest, but in 
comparison with other bonds, in times of economic downturns such bonds perform much 
better than higher-yielding bonds (Stanton, 1998). On the other hand, the rate of investment-
grade corporate bonds is different than treasury bonds and other U.S. government bonds 
because; unlike the government bonds, in such bonds “the risk of default is considered pretty 
remote” (Stanton, 1998).  
The different structures of bonds owe their difference to their nature and to the economic 
purposes for which they are issued. For an example, the high yielding structure of corporate 
bonds makes them different from treasury bonds that are structured to be low yielding 
(Investopedia, 2017). On the other hand, convertible bonds are structured in such a unique 
way that, unlike corporate bonds, such bonds can be converted by bondholders to equity if 
the undertaking company continues to sustain its profitability (Investopedia, 2017). The 
redeemable structure of callable bonds is the feature that distinguishes it from other types of 
bonds making it much easier for the issuer to redeem callable bonds prior to maturity 
(Investopedia, 2017).  
The rate given to certain bonds says much about the credit rating for each issuer. It must be 
taken into account that such credit ratings are meant for guiding people in understanding and 
estimating the ability and willingness on the part of the issuers to pay the interest and repay 
the principal as has been scheduled (SIFMA, 2013). In other words, “The leading rating 
agencies assess most issuers of corporate bonds as to their ability and willingness to pay 
interest and repay principles as scheduled.

XXXXXXXXXXwords Understanding how to properly value a vanilla bond (a plain bond) is essential for finance. Using the following Web site(https://www.auctions.zionsdirect.com/), find 3 different...

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