Fixed Income Task – Task Template

Q1 - Screening the Companies

After some initial analysis you find a broker who is willing to sell bonds that have been issued by the
following corporates: Apple and BHP.

Conduct an initial screen of each issuer by providing a short description of the company, their credit
rating, interest coverage ratio, and current profitability. You’ve also been asked to include any other
factors you feel might affect your decision. (Hint: Refer to the ‘How are Bonds related?’ article in the
task resources section for suggestions as to where you can find credit ratings from)

APPLE INC:

Apple Inc registered on NASDAQ, is a multinational company, with market capitalization of

$2463.7 billion and revenue of $274.51 billion. It is engaged in designing, manufacturing and
marketing mobile communication and media devices, personal computers, and portable digital music
players.Apple has been assigned Aa1 rating by Moody for its notes and bonds. This rating of Aa1
represents stability, profitability, strong base of products and services as well as loyal customer
base. Apple Inc represents strong liquidity with $84 billion cash balances even amid times of
COVID.

Apple net profit margin is 25% as of 30 june 2021. It has shown increase as compared to 20% as
on 20 june 2020. As on June 2021, its interest coverage ratio is 36.3X which reflects that apple is
capable enough to pay back its creditors.

BHP Group: BHP Group was founded in 1851 and is headquartered in Melbourne,

Australia. Bhp Billiton operates under Other Industrial Metals Mining classification in the
United States and is traded on New York Stock Exchange.
Moody has assigned A2 rating to BHP which represents stable outlook. It has interest
coverage ratio of 35.61X which also represents its capability to payoff its debt. It has Net profit margin
22.12 %.For the fiscal year ended 30 June 2021, BHP Group Ltd revenues increased 42% to
$60.82B whereas Net income increased 42% to $11.3B.
Q2 – Building a Yield Curve

Now that you have some preliminary information on each issuer, your next task is to ask your broker
what bonds they have in stock. They give you the following list of bonds with maturity date and yield
to maturity.

Years To Yield to
Issuer Maturity Date Maturity Maturity
For reference, they have also included
Apple 30-Jun-20 0.38 1.00 comparative information for the Australian
Government bond curve.
Apple 30-Jun-22 2.38 1.30

Apple Maturity
30-Mar-25 Years
5.13 To Yield
1.70 to
Issuer Date Maturity Maturity
Apple 30-Mar-27 7.13 2.00
ACGB 30-Jun-21 1.38 0.50
Apple 30-Sep-30 10.64 2.40
ACGB 30-Jun-23 3.38 0.85
BHP 30-Mar-20 0.13 1.00
ACGB 30-Jun-25 5.39 1.00
BHP 30-Sep-21 1.64 1.40
ACGB 30-Jun-27 7.39 1.10
BHP 30-Dec-22 2.88 1.60
ACGB 30-Jun-29 9.39 1.10
BHP 30-Jun-25 5.39 2.10

BHP 30-Jun-27 7.39 2.50

Using this data – on a single chart - create a yield curve for each corporate issuer and the Australian
Government. (Hint: A yield curve charts the time to maturity vs the yield)

[Insert chart]
Q3 – Choosing a Bond

With this information in hand you are now going to make a recommendation to the portfolio
manager on which security you think they should buy. Which issuer do you prefer and at what
maturity? In your response, include the reasons for your decision and refer to the yield curve you
[100 words]
created in Question 2?
Q4 – Thinking about the Macro Implications

Over the past two months, iron ore prices have fallen 20% and your company’s economist is telling
you that they expect this to fall another 30% over the next three months. On the back of this
information,
[100 words]the economist is forecasting the Reserve Bank of Australia (RBA) will make two interest
rate cuts.

Does this information change your choice of bonds? Why/Why not? What factors did you consider
when making this decision?