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Underwriting spread for bonds, shares

Question # P2
The Detroit Slugger Bat Company needs to raise $30 million. The investment banking firm of Kaline, Horton, & Greenberg will handle the transaction.

a. If stock is utilized, 1.8 million shares will be sold to the public at $16.75 per share. The corporation will receive a net price of $16 per share. What is the percentage of underwriting spread per share?
b. If bonds are utilized, slightly over 30,000 bonds will be sold to the public at $1,001 per bond. The corporation will receive a net price of $993 per bond. What is the percentage of underwriting spread per bond? (Relate the dollar spread to the public price.)
c. Which alternative has the larger percentage of spread? Is this the normal relationship between the two types of issues?

Solution Preview

The Detroit Slugger Bat Company needs to raise $30 million. The investment banking firm of Kaline, Horton, & Greenberg will handle the transaction.

a.   If stock is utilized, 1.8 million shares will be sold to the public at $16.75 per share. The corporation will receive a net price of $16 per share. What is the percentage of underwriting spread per share?

Underwriting spreads are the difference between ...

Solution Summary

The underwriting spread for a public issue of shares and a public issue of bonds are calculated. The spreads on bond issue and share issue are compared.

$2.19