Tombstone Case Essay

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Tombstone Case MSFT Notes: a. Why is MSFT raising money? b. Is this paper really cheap? What is YTM for each issue? c. Why YTM differs from coupon rate? What should we compare YTM with? d. Why did MSFT issue four papers instead of one? e. Do you expect that those notes will be called or redeemed? a. MSFT is raising money for general corporate purposes, which may include funding for working capital, capital expenditures, repurchases of stock and acquisitions. Also they choose to raise money at this time because the yields for treasury instruments are low, so Microsoft can issue in a lower rate. b. No, because the yields for treasury instruments are very low at the time, so the premium the company will add to their rate is very low, and the investors will get less money for the same level of riskiness, so the paper is not really cheap. YTMs for these 4 issues are the following: 2013 notes: 0.93% 2015 notes: 1.72% 2020 notes: 3.06% 2040 notes: 4.56% c. The YTM is differing from the coupon rate because these notes are selling at a discount price. The YTMs should be compared with the coupon rate. d. Microsoft issued 4 papers instead of one is because risk diverse, with only 1 paper there is a great risk for them, what if people do not want to buy the type of paper they issued, with the 4 papers people can get different options, some people want long term paper and some people want short term paper. Microsoft can decrease the risk of losing with 4 papers. Also with these 4 types of papers, it is possible that Microsoft had different uses for these money, they may need some money for some short term goal and some money for their long term investment, because they need money at different times, so they issue the 4 papers with different time plots, they can use these money on different things. Investors need different papers for different times, some

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