Bond terms Use Table 24.1 (but not the text) to answer the following questions:
- a. Who are the principal underwriters for the AMAT bond issue?
- b. What is the percentage underwriting spread?
- c. How many dollars does the company receive for each bond after deduction of the underwriters' spread?
- d. Is the bond "bearer" or "registered"?
- e. Who is the trustee for the issue?
a)
To determine: The principle under writers for the AMAT bond issue.
Explanation of Solution
The firms can market issue of bond globally or internationally, instead of issuing bond in a particular countries and if the issue is designated as one country’s currency but marketed globally outside that country are known as euro bonds. Following are the underwriters for the AMAT bond issue:
- L branches of large country U
- E banks
- Country J banks
- Security dealers
b)
To determine: The percentage underwriting spread.
Underwriting spread is the difference between the issue price of securities to public and amount settled by the underwriters in a new issue of securities.
Explanation of Solution
Computation of percentage underwriting spread is as follows:
Therefore, the percentage underwriting spread is 0.875%.
c)
To determine: The proceeds to the company after deducting the underwriters spread.
Explanation of Solution
The proceeds to the company after deducting the underwriters spread is $987.17
d)
To determine: Whether the bond is ‘bearer’ or ‘registered’.
Explanation of Solution
The registered bond is the bond in which the owner registered his name with the issuer of the bond. The owner’s complete information and the contact details will be available to the company. Whereas in the case of bearer bond instead of registration it is owned by the holder or bearer and no information of the bearer will be available to the company.
Therefore, the bond in the current scenario is registered bond.
e)
To determine: The trustee for the issue.
Explanation of Solution
The appropriate trustee in the issue of the bond is country U Bank National Association.
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Chapter 24 Solutions
Principles of Corporate Finance
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