A firm issues $500 million in straight bonds at an original issue discount of 1% and a coupon rate of 5%. The firm pays fees of 3% on the face value of the bonds. What is the net amount of funds that the debt issue will provide for the firm?

Question

Quizplus · Accepted Answer

The net amount of funds is calculated by subtracting the original issue discount and fees from the face value of the bonds. The original issue discount is 1% of $500 million, which is $5 million, and the fees are 3% of $500 million, which is $15 million. Subtracting both from the face value ($500 million - $5 million - $15 million) gives $480 million.

A Firm Issues $500 Million in Straight Bonds at an Original