Fi 473 Case: Msft

                             Tombstones

MSFT Notes:

1 Why is MSFT raising money?

2 Is this paper really cheap? What is YTM for each issue?

3 Why YTM differs from coupon rate? What should we compare YTM with?

4 Why did MSFT issue four papers instead of one?

5 Do you expect that those notes will be called or redeemed

1:  

  MSFT is raising money through senior unsecured notes in four series. The reason is that it wants to use the money for its general corporate purposes, which may include funding for working capital, capital expenditures, repurchases of stock and acquisitions. In addition, the yields for treasury instruments are low so that MSFT can issue notes in a lower rate.

2:

  This paper is really cheap because the YTM of this paper for these 4 issues is so comparable to the corresponding Treasury Bill Yield rates. Followings are the YTM for each of the 4 issues.

  YTM(2013)=0.93%

  YTM(2015)=1.73%

  YTM(2020)=3.06%

  YTM(2040)=4.56%

3:

  YTM is the rate of return anticipated on a bond if it is held until the maturity date, while coupon rate is the interest rate stated on a bond, note or other fixed income security, expressed as a percentage of the principal (face value). For this case, YTM differs from because these senior unsecured notes are selling at a discount price. Comparing with YTM, we should use coupon rate.

4:

  MSFT issued four papers rather than one because of risky diversity. If MSFT issues 1 paper, there will be a great risk for it because it can not guarantee that whether people are willing to buy the type of paper it issued. With the 4 papers people can have more choices, some people want to buy long-term paper and some people want to purchase short-term paper. In this way, MSFT can decrease the risk by issuing 4 papers. Furthermore, MSFT may needs money at different time and investors may need different papers for different time. This why issuing four papers is better.