A firm issues $160 million in straight bonds at par and a coupon rate of 8.5%. The firm pays fees of 2% on the face value of the bonds. The net amount of funds that the debt issue will provide for the firm is closest to which of the following?

Question

Quizplus · Accepted Answer

The net amount of funds that the debt issue will provide for the firm is the face value of the bonds minus the fees paid. In this case, the face value of the bonds is $160 million and the fees paid are 2% of the face value, or $3.2 million. Therefore, the net amount of funds that the debt issue will provide for the firm is $160 million - $3.2 million = $156.8 million, which is closest to $157 million.

A Firm Issues $160 Million in Straight Bonds at Par