Bond Yields for Johnson & Johnson

issue to Minicase 5 puzzle Yields for Johnson & Johnson Objective The case enables the student to gain incursion into the financing activities of large corporations and to practice calculating bond prices and yields. Computations be carried start for annual and periodical matter to periods, and for fractional periods. Case Discussion Johnson & Johnson is virtuoso of the leading pharmaceutical firms in the world. It is large and financially sophisticated. When it needs to take m whizy, it sells bonds where it potty get the best deal.Sometimes that means selling bonds to U. S. investors. early(a) times it means issuing Eurodollar bonds to investors outside the United States. (The text discusses the Eurobond foodstuff in more depth in Chapters 20 and 27. ) The student is asked in this case to use the techniques developed in Chapter 5 to calculate the yields of interior(prenominal) bonds and Eurobonds. The main difference between the two is that domestic help bonds pay inte rest semiannually, whereas Eurobonds pay annually.Due to this difference in the frequency of compounding, the student must(prenominal) be careful to compare the APYs of domestic and Eurobonds when trying to materialise the lower-cost alternative. express S-5-1 provides information concerning five Johnson & Johnson debt issues. Answers to Questions 1. Calculate the APY for each of Johnson & Johnsons bonds and identify which nonpareil has the lowest APY, assuming today is January 15, 2009. Answer Bond 1, calculate the APY of the 7. 375s23 eurobond. in that location are 15 coupon ayments left, and the choke one was made 2 months plus 6 long time ago (66 old age ago). Use annual payment analysis CPN=7. 375% x mebibyte = $73. 75. Solve the equation victimisation a spreadsheet with N=15, and f=(66/360)=0. 183333 to find the APY = 7. 3001% pic Bond 2, calculate the APY of the 7. 375s22 domestic bond. There are 27 coupon payments left and the resist one was made 17 geezerhood ago on 12/29/08. Use semiannual payment analysis CPN/2=7. 75% x 1000 / 2 = $36. 875. Solve the equation using a spreadsheet with N=(2 x 13. 5)=27 semiannual periods, and f=(17/180) = 0. 094444 to find r = 3. 5198%, so the APY = 7. 1635% pic Bond 3, calculate the APY of the 8. 25s31 eurobond. There are 23 coupon payments left, and the last one was made 8 months and 15 days ago (255 days ago). Use annual payment analysis CPN=8. 25% x 1000 = $82. 50.Solve the equation with N=23 years, and f = (255)/360) = 0. 708333 to find APY = 7. 8288% pic Bond 4, calculate the APY of the 6. 73s20 domestic bond. There are 24 coupon payments left, and the last one was made 4 months ago (120 days ago). Use semiannual payment analysis CPN/2=6. 3% x 1000 / 2 = $33. 65. Solve the equation using a spreadsheet with N=2 x 12=24 semiannual periods, and f = 120/180 = 0. 666667 to find r = 3. 6269%, so the APY = 7. 3854% pic Bond 5, calculate the APY of the 6. 85s35 domestic bond. There are 52 coup on payments left, and the last one was made 14 days ago. Use semiannual payment analysis CPN/2=6. 85% x 1000 / 2 = $34. 25. Solve the equation using a spreadsheet with N=2 x 26=52 semiannual periods, and f = 14/180 = 0. 077778 to find r = 3. 5616%, so the APY = 7. 2500% pic The 7. 375s22 have the lowest APY, 7. 1635%. 2. The 8. 25s28 can be called in 2021 at par. Calculate the YTC (yield to call) assuming today is January 15, 2009. Does this miscellanea your answer to scruple 1? Answer There are 13 coupon payments left, and the last one was made 8 months and 15 days ago (255 days ago). Use annual payment analysis CPN=8. 25% x 1000 = $82. 50. Solve the equation with N=13 years, and f = (255)/360) = 0. 08333 to find APY = 7. 6871% pic The APY of 7. 6871% is less than the APY of 7. 8288% found for Bond 3 in question 1, but is more than the other bonds. So the answer to question 1 does not change, the 7. 375s22 have the lowest APY, 7. 1635%. Exhibit S-5-1 Terms of Johnson & Johnson Debt Issues ISSUE marketplace COUPON FREQUENCY MATURITY PRICE1 (% OF PAR) 73/8s 20 Eurobond 73/8% Annual 11/09/20 101. 9785 73/8s 19 Domestic 73/8% biannual 06/29/19 103. 288 81/4s 28 Eurobond 81/4% Annual 04/30/28 110. 1563 6. 73s 17 Domestic 6. 73% Semiannual 09/15/17 98. 1535 6. 85s 32 Domestic 6. 85% Semiannual 01/01/32 97. 0501 1 Including accrued interest.