Alberta Energy issues $85 million in straight bonds at par with a coupon rate of 6.5%.The firm also pays underwriting fees of 3.5% on the face value of the bonds.What are the net proceeds to Alberta Energy from the bond issue?

Question

Quizplus · Accepted Answer

The net proceeds are calculated by subtracting the underwriting fees from the total bond issue. The underwriting fees are 3.5% of $85 million, which is $2.975 million. Therefore, the net proceeds are $85 million - $2.975 million = $82.025 million, which rounds to $82 million.

Alberta Energy Issues $85 Million in Straight Bonds at Par