purchase price and the total resale price is called the underwriting spread, and it is the banker’s compensation. In addition to underwriting new securities, investment banks also provide other services, such as preparing the prospectus, preparing legal documents to be filed with the SEC, and providing general financial advice to the issuer. Investment Banking: Cranjet, Inc. is issuing 10,000 bonds, and its investment banker has guaranteed a price of $985 per bond. The investment banker sells the entire issue to investors for $10,150,000. What is the underwriting spread for this issue? What is the percentage underwriting cost? How much did Cranjet raise? LO 2 Solution: a. $300,000 ($10,150,000 $985 x 10,000) – b. 3.05 percent ($30/$985) c. $9,850,000 ($985 x 10,000) Financial Institutions: What are some of the ways in which a financial institution or intermediary can raise money? LO 6 Solution: A financial intermediary can raise money through the sale of financial products that individuals or businesses will purchase, such as checking and savings accounts, life insurance policies, or pension or retirement funds. Financial Institutions: How do financial institutions act as intermediaries to provide services to small businesses? LO 6
purchase price and the total resale price is called the underwriting spread, and it is the banker’s compensation. In addition to underwriting new securities, investment banks also provide other services, such as preparing the prospectus, preparing legal documents to be filed with the SEC, and providing general financial advice to the issuer. Investment Banking: Cranjet, Inc. is issuing 10,000 bonds, and its investment banker has guaranteed a price of $985 per bond. The investment banker sells the entire issue to investors for $10,150,000. What is the underwriting spread for this issue? What is the percentage underwriting cost? How much did Cranjet raise? LO 2 Solution: a. $300,000 ($10,150,000 – $985 x 10,000) b. 3.05 percent ($30/$985) c. $9,850,000 ($985 x 10,000) Financial Institutions: What are some of the ways in which a financial institution or intermediary can raise money? LO 6 Solution: A financial intermediary can raise money through the sale of financial products that individuals or businesses will purchase, such as checking and savings accounts, life insurance policies, or pension or retirement funds. Financial Institutions: How do financial institutions act as intermediaries to provide services to small businesses? LO 6
Solution-manual-for-Fundamentals-of-Corporate-Finance-2nd-edition-by-Robert-Parrino.docx