Suppose your firm needs to raise €100,000,000 with a one-year bond with a coupon rate of 8 percent per annum. The underwriting spread is 2 percent. What should the amount of the bond offering be?

Question

Quizplus · Accepted Answer

The amount of the bond offering can be calculated using the following formula:

Amount = (Coupon Rate * Face Value) / (1 - Underwriting Spread)

We know that the coupon rate is 8%, the underwriting spread is 2%, and the firm needs to raise €100,000,000. To solve for the face value, we can rearrange the formula as follows:

Face Value = Amount * (1 - Underwriting Spread) / Coupon Rate

Plugging in the numbers, we get:

Face Value = €100,000,000 * (1 - 0.02) / 0.08 = €102,040,816.30

Therefore, the amount of the bond offering should be €102,040,816.30, which is closest to option B.

Suppose Your Firm Needs to Raise €100,000,000 with a One-Year