Cranjet Inc. is issuing 10,000 bonds, and its investment banker has guaranteed a price of $985 per bond. If the investment banker sells the entire issue to investors for $10,150,000.

Question:

Cranjet Inc. is issuing 10,000 bonds, and its investment banker has guaranteed a price of $985 per bond. If the investment banker sells the entire issue to investors for $10,150,000.

a. What is the underwriting spread for this issue?

b. What is the percentage underwriting cost?

c. How much did Cranjet raise?

Answer:

a. $ 300, 000 ($ 10, 150, 000 – $ 985 x 10, 000).

b. 3.05 percent [($ 1, 105 – 985) / $ 985].

c. $9, 850, 000 ($ 985 x 10, 000).

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