Bond ratings for Microsoft and Google
May 25
According to the morningstar website, both Microsoft and Google have high bond ratings, with Microsoft slightly higher.
| Microsoft | ||
|---|---|---|
| Morningstar Credit Rating | AAA | AA |
| Amt Outstanding | $16.9 Bil | $3.0 Bil |
| Debt/Assets | 10.58% | 5.31% |
Based on the ratings, the bond market appears to favor more experienced borrowers, since from a debt load perspective, Google has better standing. Google’s entire bond issue is encompassed in just three bonds with the longest maturation in 2021. It’s also interesting that all three mature on May 19.
Duration
Duration is calculated the weighted average of the present values of all future cash flows. It can be represented by the following equation (ref), where PV is the present value.
Calculations like this are easily done in Excel. For this exercise I chose bonds that mature in 2016 and payout semi-annually for both Google and Microsoft.
Microsoft bond duration
| Microsoft | |||||||
|---|---|---|---|---|---|---|---|
| Coupn | 2.500% | ||||||
| Par | $1,000.00 | ||||||
| Maturity | 2/8/2016 | ||||||
| Frequency | semi-annual | ||||||
| Discount rate | 2.38% | ||||||
| 1 | 2 | 3 | 4 | 5 | 6 | Total | |
| 8/8/2013 | 2/8/2014 | 8/8/2014 | 2/8/2015 | 8/8/2015 | 2/8/2016 | ||
| Payment | $25.00 | $25.00 | $25.00 | $25.00 | $25.00 | $1,025.00 | |
| PV(Ct) | $24.42 | $23.85 | $23.30 | $22.76 | $22.23 | $890.09 | $1,006.64 |
| PV(Ct)/PV | 0.0243 | 0.0237 | 0.0231 | 0.0226 | 0.0221 | 0.8842 | |
| Duration | 0.0121 | 0.0237 | 0.0347 | 0.0452 | 0.0552 | 2.6527 | 2.8236 |
Google bond duration
| Coupon | 2.125% | ||||||
| Par | $1,000.00 | ||||||
| Maturity | 5/19/2016 | ||||||
| Frequency | semi-annual | ||||||
| Discount rate | 2.04% | ||||||
| 1 | 2 | 3 | 4 | 5 | 6 | Total | |
| 11/19/2013 | 5/19/2014 | 11/19/2014 | 5/19/2015 | 11/19/2015 | 5/19/2016 | ||
| Payment | $21.25 | $21.25 | $21.25 | $21.25 | $21.25 | $1,021.25 | |
| PV(Ct) | $20.83 | $20.41 | $20.00 | $19.60 | $19.21 | $904.71 | $1,004.75 |
| PV(Ct)/PV | 0.0207 | 0.0203 | 0.0199 | 0.0195 | 0.0191 | 0.9004 | |
| 0.0104 | 0.0203 | 0.0299 | 0.0390 | 0.0478 | 2.7013 | 2.8486 |
Based on the data above, the duration for the Google bond is higher than for the Microsoft bond, however the difference is slight. You can download the original spreadsheet here: corporate-finance-project-bond-duration
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