List their coupon, maturity, ratings (Moody and S&P), Last price and Yield Apple
ID: 2796493 • Letter: L
Question
List their coupon, maturity, ratings (Moody and S&P), Last price and Yield
Apple (AAPL4538815)
-Coupon rate: 1.500%
-Maturity date: 9/12/2019
-Ratings Moody: Aa1
-Ratings S&P: AA+
-Last price: $99.210
-Yield: 1.952
Motorola Solutions Inc (MSI3702010)
-Coupon rate: 7.500%
-Maturity date: 5/15/2025
-Ratings Moody: Baa3
-Ratings S&P: BBB-
-Last price: $120.396
-Yield: 4.273
Microsoft Corp (MSFT.GB)
-Coupon rate: 4.200%
-Maturity date: 6/01/2019
-Ratings Moody: Aaa
-Ratings S&P: AAA
-Last price: $103.200
-Yield: 2.023
2. Calculate their yields using price and check whether you get the same yields as listed.
3. Use current interest rate with the same maturity as those bonds to price these bonds. Are they premium, par or discount bonds?
Need help with questions 2 and 3.
Explanation / Answer
Yield for all the three companies are as follows:
The formula for calculating yield:
Yield = Annual coupon payment divided by current market price
Since no information is given for face value, we assume that the FV for all the three bonds is $100.
Yield for apple = 1.5/99.21 = 1.5119 %, this is different from yields as listed i.e. 1.952
Yield for Motorola = 7.5/120.396 = 6.23%, this is different from yields as listed i.e. 4.273
Yield for Microsoft = 4.2/103.2 = 4.07%, this is different from yields as listed i.e. 2.023
Answer to question no. 3.
We assume that this question isfrom 2017 only and not for any previous year. Hence we take the period t for the given bonds as follows:
Apple = 1.75 years
Motorola = 1.5 years
Microsoft = 1.5 years
Now the price of the bonds using the formulae ((Future Cash Flow)/(1+r%)^n)
Companies
Amount of Principal
PV @ THE CALCULATED INT. RATE
Interest for 1st yr USING COUPON RATE
PV USING DISCOUNT PERCENTAGE AS COUPON RATE
TOTAL PV
APPLE
100
100/ (1+1.5119%) ^1.75
= 97.41
=(100*(1+1.5%)^1.75)-100 = 2.64
2.64/(1+1.5119%)^1.75 = 2.57
97.41+2.57 = 100
At discount
MOTOROLA
100
@6.23% FOR 1.5 YRS= 91.33
11.45
10.47
101.80
At premium
MICROSOFT
100
@4.07% =
94.20
6.37
6.00
100.20
At premium
Companies
Amount of Principal
PV @ THE CALCULATED INT. RATE
Interest for 1st yr USING COUPON RATE
PV USING DISCOUNT PERCENTAGE AS COUPON RATE
TOTAL PV
APPLE
100
100/ (1+1.5119%) ^1.75
= 97.41
=(100*(1+1.5%)^1.75)-100 = 2.64
2.64/(1+1.5119%)^1.75 = 2.57
97.41+2.57 = 100
At discount
MOTOROLA
100
@6.23% FOR 1.5 YRS= 91.33
11.45
10.47
101.80
At premium
MICROSOFT
100
@4.07% =
94.20
6.37
6.00
100.20
At premium
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