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 that the debt issue will provide for the firm is the face value of the bonds minus the original issue discount and the fees. The original issue discount is 1% of $500 million, or $5 million. The fees are 3% of $500 million, or $15 million. Therefore, the net amount of funds that the debt issue will provide for the firm is $500 million - $5 million - $15 million = $480 million.

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