Question

Assignment Topic:

You’ve read about bonds, and should understand that they are basically agreements where you loan your money to a company (or other entity) who pays interest while it uses your money, then repays the principal.

If you were going to lend money to a company, which one would you choose and why? Remember, the bigger and safer the company, the lower the return; but if a company is too risky, you might lose everything. That said, what company out there do you think would be a good candidate to borrow money from you?

Submission Format:

1. The length of your response is conditional on the question. Answer fully, but concisely.

Answer 1

I would lend my money to Southwest Airlines. The company is debt-free and has a long history to paying dividends to shareholders. Currently due COVID 19 pandemic, the airline industry is facing distress and I am reasonably certain that they would need some capital to survive sooner or later. Given the quality of the franchise and how efficiently the business is run and cost structure is managed, I am reasonably sure that I would get a good risk adjusted return by lending to them.