Here are the instructions. Answer all of the following questions - all apply to

Question

Here are the instructions. Answer all of the following questions - all apply to the Apple 2.5% Notes due 2022 (Fixed Rate)

If you purchased a $10,000 bond, how much interest do you receive on each bond payment?

How does the Apple bond compare to a benchmark?

Are you guaranteed to receive interest payments until 2022? (ignore default risk)

How much does Apple receive for issuing this bond?

Pick another fixed rate with a different loan maturity. What is the interest rate? What does that tell you?

Principal Amount: $1,000,000,000

Maturity: February 7, 2020

Coupon: 1.900%

Price to Public: 99.951%

Interest Payment Dates: February 7 and August 7, commencing August 7, 2017

Day Count Convention: 30/360

Benchmark Treasury: 1.375% due January 15, 2020

Benchmark Treasury Yield: 1.467%

Spread to Benchmark Treasury: 45 basis points

Yield: 1.917%

Explanation / Answer

You will be get two coupon payments in the year. Each coupon payment will be of (.019/2)*10,000 = $95

The Apple's bond has a low spread of 45 basis points which implies that bond has very low chances of defaulting. Remember the more the bond's yield is in line with the benchmark, the less risky it is.

Yes, you are guranteed to receive the interest payments until 2022. As the question doesnt mention any details about whether the bond is callable or not, we will assume it is not and hence we will get the interest payments till 2022. Note that if the bond was callable i.e. the issuer could call it back after some time we wouldnt be guranteed interest payments until the maturity.

Amount Apple received = Price to public * Principal Amount = 99.351% * 1,000,000,000 = $993,510,000

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