A firm issues $500 million in straight bonds at par 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 firm will receive $500 million in face value of the bonds but will have to pay fees of 3%, which amounts to $15 million. Therefore, the net amount of funds that the debt issue will provide for the firm is $485 million.

A Firm Issues $500 Million in Straight Bonds at Par