Alberta Energy issues $110 million in straight bonds at par with a coupon rate of 8%.The firm also pays underwriting fees of 1.5% on the face value of the bonds.What are the net proceeds to Alberta Energy from the bond issue?

Question

Quizplus · Accepted Answer

The underwriting fees are 1.5% of the face value of the bonds, which is $1.65 million. Therefore, the total amount of money raised by the bond issue is $110 million. The net proceeds to Alberta Energy would be the amount raised minus the underwriting fees, which is $110 million - $1.65 million = $108.35 million.

Alberta Energy Issues $110 Million in Straight Bonds at Par