(8) APPL issued $12 billion in bonds of various lengths of time/maturity dates i
ID: 2657742 • Letter: #
Question
(8) APPL issued $12 billion in bonds of various lengths of time/maturity dates in April, 2014. The 30-year maturity bonds, $1,000 face value each, have a coupon rate of 4.5% per year payable semi-annually. Today the bonds have 26 years left until they come due and are currently priced at $1,097.49 per bond. What is the Yield To Maturity of this bond? (Remember YTM is an annual interest rate). (8 points) (9) Apple's estimated tax rate is 25%. Based on your answer to (8) what is their after- tax cost of debt? (4 points)Explanation / Answer
8)semiannual interest = 1000* .045*6/12 = 22.5
semiannual months = 26*2= 52
Yield to maturity = [Interest + (face value - price) /semiannual months ]/[(face value+ price) /2]
= [22.5+ (1000- 1097.49)/52]/[(1000+1097.49)/2]
= [22.5 + (-97.49/52)] /[2097.49/2]
= [22.5 - 1.87481]/1048.745
= 20.62519/1048.745
= .019667 or 1.9667% semiannually
Annual yield to maturity = 1.9667 *2 = 3.93% [using financial calculator it is around 3.9%]
9)After tax cost of debt= 3.9 [1-.25] = 2.925% [rounded to 2.93%]
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.