Answer all of the following questions - all apply to the Apple 2.5% Notes due 20

Question

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?

Coupon- 2.500%

Interest Payment dates: Feb 9 and Aug 9, starting Aug 9,2017

Benchmark Treasury- 1.875%

Benchmark Yield- 1.921%

Spread to Benchmark Treasury- 58 basis points

Yield: 2.501%

Explanation / Answer

ANSWER :

a.)

b.) apple bond compare to benchmark = (benchmark yield - benchmark treasury) / benchmark treasury = 2.453% against apple bond offer coupon rate of 2.500%

c.) refer interest payouts working in answer part (a) above, current purchase price of bond is $ 10,000 - $1321.54 = $8678.46. Hence, guaranteed payoff of principal with interest is $10000 (i.e. current bond price) which issued at a discount coupon rate of 2.500%

d.) apple would receive $8678.46 per bond offered for sale.

Year Payout dt $ YIELD INT. CUMM. PAYOFF 2017 10000 2.50% 250.1 10250.1 2018 09-Feb 10250.1 2.50% 128.1775 10378.2775 09-Aug 10378.28 2.50% 129.7804 10508.05786 2019 09-Feb 10508.06 2.50% 131.4033 10639.46112 09-Aug 10639.46 2.50% 133.0465 10772.50759 2020 09-Feb 10772.51 2.50% 134.7102 10907.21779 09-Aug 10907.22 2.50% 136.3948 11043.61255 2021 09-Feb 11043.61 2.50% 138.1004 11181.71293 09-Aug 11181.71 2.50% 139.8273 11321.54025 2022 09-Feb 11321.54 2.50% 141.5759 11463.11611 09-Aug 11463.12 2.50% 143.3463 11606.46237 1321.54 13.22% total yield 2.20% AVERAGE ANNUAL YIELD.

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