Answer the following question

P7-49. Interpreting Debt Footnotes on Interest Rates and Interest Expense CVS Health Corporation discloses the following as pain of its long-term debt footnote in its 2015 lOK. BORROWINGS AND CREDIT AGREEMENTS The following table is a summary of the Company's borrowings as of December 31: Commercial paper ........................................ 3.25% senior notes due 2015 ............................... 1.2% senior notes due 2016 ................................ 6.125% senior notes due 2016 .............................. 5.75% senior notes due 2017 ............................... 1.9% senior notes due 2018 ................................ 2.25% senior notes due 2018 ............................... 2.25% senior notes due 2019 ............................... 6.6% senior notes due 2019 ................................ 2.8% senior notes due 2020 ................................ 4.75% senior notes due 2020 ............................... 4.125% senior notes due 2021 .............................. 2.75% senior notes due 2022 ............................... 3.5% senior notes due 2022 ................................ 4.75% senior notes due 2022 ............................... 4% senior notes due 2023 .................................. 3.375% senior notes due 2024 .............................. 5% senior notes due 2024 .................................. 3.875% senior notes due 2025 .............................. 6.25% senior notes due 2027 ............................... 3.25% senior exchange debentures due 2035 .................. 4.875% senior notes due 2035 .............................. 6.125% senior notes clue 2039 .............................. 5.75% senior notes due 2041 ............................... 5.3% senior notes due 2043 ................................ 5.125% senior notes due 2045 .............................. Capital lease obligations ................................... Other ................................................... Total debt principal ........................................ Debt premiums ........................................... Debt discounts and deferred financing costs ................... Less: Short-tem'i debt {commercial paper) .......................... Current portion of long-term debt ............................ Long-term debt .......................................... 750 421 1,080 2,250 1,250 650 394 2,750 450 550 1,250 1,500 400 1,250 650 300 3,000 453 5 2,000 734 493 750 3,500 644 20 27,694 39 (269) 27,464 (1 ,197) $26,267 9 685 L04 CVS HEALTI CORPORATIC (CVS) CVS discloses its required principal debt repayments due during each of the next ve years and thereafter. 2016 ........................................................... $ 1,197 2017 ........................................................... 1,113 2018 ........................................................... 3,521 2019 .............. .......... . .............. . .............. 1,266 2020 ........................................................... 3,224 Thereafter ....................................................... 1 7,373 Total ........................................................... $27,694 CVS also discloses the following information. Interest expense, netInterest expense, net of capitalized interest, was $859 million, $615 million and $517 million, and interest income was $21 million, $15 million and $8 million in 2015, 2014 and 2013, respectively. Capitalized interest totaled $12 million, $19 million and $25 million in 2015, 2014 and 2013, respectively. Interest paid totaled $629 million, $647 million, and $534 million in 2015, 2014, and 2013 respectively. The price of the 6.125% senior note due 2039 as of May 2016 follows (from Yahoo! Finance). 2039 CV8 Health Corporate 6.125 126.13 4.856 BBB No (NYSE: CV8) Debentures Required (1. b. What is the average coupon rate (interest paid) on the long-term debt? (H I'm: Use the interest expense disclosures.) Does your computation of the coupon rate in part a seem reasonable given the footnote disclosure relating to specific bond issues? Explain. What is the average effective rate (interest expense) on the longterm debt? Explain how the amount of interest paid can differ from the amount of interest expense recorded in the income statement. On its 2015 balance sheet, CVS reports current maturities of long-term debt of $1,197 million as part of short-term debt. Why is this amount reported that way? Is this amount important to our analysis of CVS? Explain. The $1,500 million 6.125% senior note due in 2039 is priced at 126.13 (126.13% of face value, or $1,891.95 million) as of 2016, resulting in a current yield of 4.856%. Assuming that the credit rating of CVS has not changed, what does the pricing of this 6.125% coupon bond imply about interest rate changes since CVS issued the bond