Question

Amazon.com, Inc. is offering $1,000,000,000 of their 0.400% notes due 2023 (the "2023 notes"), $1,250,000,000 of their 0.800% notes due 2025 (the "2025 notes"), $1,250,000,000 of their 1.200% notes due 2027 (the "2027 notes"), $2,000,000,000 of their 1.500% notes due 2030 (the "2030 notes"), $2,500,000,000 of their 2.500% notes due 2050 (the "2050 notes"), and $2,000,000,000 of their 2.700% notes due 2060 (the "2060 notes," and, together with the 2023 notes, the 2025 notes, the 2027 notes, the 2030 notes, and the 2050 notes, the "notes"). The 2023 notes will bear interest at a rate of 0.400% per annum. The 2025 notes will bear interest at a rate of 0.800% per annum. The 2027 notes will bear interest at a rate of 1.200% per annum. The 2030 notes will bear interest at a rate of 1.500% per annum. The 2050 notes will bear interest at a rate of 2.500% per annum. The 2060 notes will bear interest at a rate of 2.700% per annum. Amazon.com will pay interest semi-annually on the notes beginning December 3, 2020. The 2023 notes will mature on June 3, 2023. The 2025 notes will mature on June 3, 2025. The 2027 notes will mature on June 3, 2027. The 2030 notes will mature on June 3, 2030. The 2050 notes will mature on June 3, 2050. The 2060 notes will mature on June 3, 2060. Suppose today is June 3, 2020, the issue day of these bonds.

Answer the following questions:
a. For each note, determine the amount of each coupon payment per $1,000 of face value and the total number of coupon payments.

Answer 1

To find the coupon payment for each note, the interest rate is multiplied by the face value and then halved, since the payments are semi-annual. The total number of coupon payments is determined by the number of years until maturity multiplied by two (because interest is paid semi-annually).

Step-by-step explanation:

The question involves calculating the coupon payments and the total number of coupon payments for a series of corporate bonds issued by Amazon.com, with varying interest rates and maturity dates. Let's tackle each part of the question:

• 2023 notes ($1,000 facial value, 0.400% interest): The semi-annual coupon payment is $1,000 × 0.004 × 0.5 = $2. The bond matures in 3 years, which gives us 6 coupon payments.
• 2025 notes ($1,000 facial value, 0.800% interest): The semi-annual coupon payment is $1,000 × 0.008 × 0.5 = $4. There are 10 semi-annual periods until maturity, so 10 coupon payments.
• 2027 notes ($1,000 facial value, 1.200% interest): The semi-annual coupon payment is $1,000 × 0.012 × 0.5 = $6. This bond will have 14 coupon payments.
• 2030 notes ($1,000 facial value, 1.500% interest): The semi-annual coupon payment is $1,000 × 0.015 × 0.5 = $7.50. The bond matures in 10 years, resulting in 20 coupon payments.
• 2050 notes ($1,000 facial value, 2.500% interest): The semi-annual coupon payment is $1,000 × 0.025 × 0.5 = $12.50. There will be 60 coupon payments over 30 years.
• 2060 notes ($1,000 facial value, 2.700% interest): The semi-annual coupon payment is $1,000 × 0.027 × 0.5 = $13.50. Over 40 years, the bond will have 80 coupon payments.

When calculating the present value of these payments, if the market interest rates shift, the present value of the bond's future payments will also change, reflecting the current market conditions.