FRM Part I · FRM Exam Part I · Corporate Bonds
A company issues USD 200 million of bonds through underwriters at a gross spread of 1.25% of face value. The bonds are issued at par and the company also pays USD 0.4 million of other issuance costs (legal, rating, listing). What are the net proceeds to the company?
Net proceeds are USD 197.1 million. The underwriting spread is 1.25% of USD 200 million, or USD 2.5 million, and other issuance costs are USD 0.4 million. Subtracting both from the USD 200 million par proceeds gives USD 197.1 million.
- AUSD 197.1 millionCorrect
- BUSD 197.5 million
- CUSD 199.6 million
- DUSD 196.7 million
Explanation
Gross spread = 1.25% x 200 = USD 2.5 million. Net proceeds = 200 - 2.5 - 0.4 = USD 197.1 million. USD 197.5 million ignores other costs; USD 199.6 million ignores the spread.
Did you get it right without looking?
One question tells you little. A timed set on Corporate Bonds shows your real accuracy, how long you take and where you lose marks.
More Corporate Bonds questions
- A corporate bond indenture includes a sinking fund provision requiring the issuer to retire a portion of the issue each year. From the persp…
- A corporate bond has a sinking fund provision requiring the issuer to retire part of the issue each year. From a bondholder's perspective, w…
- A company issues a 10-year callable bond with a coupon of 6%. Compared with an otherwise identical non-callable bond, which statement is cor…
- Company X issues USD 200 million of bonds through a firm commitment underwriting. The underwriter buys the whole issue at 98.50 per 100 face…
- A corporation issues a bond with a clause that lets the issuer redeem the bonds before maturity at a pre-specified price. Relative to an oth…
- A dealer quotes a corporate bond at a bid of 98.40 and an ask of 99.20 per 100 face value. An investor buys USD 5 million face and immediate…