A municipality is issuing 50,000 bonds at a public offerings price of $1,000. The manager of the underwriting syndicate receives $1.25 per bond. The total takedown is $8.75 per bond and the selling concession is $5.00 per bond.
What amount will the issuer receive?
a. $991.25 per bond for a total of $49,562,500
b. $990.00 per bond for a total of $49,500,000
c. $985.00 per bond for a total of $49,250,000
d. $1,000.00 per bond for a total of $50,000,000
In a new municipal bond offering, the underwriting syndicate assumes risk and is therefore entitled to make a profit on all bonds sold. Members of the selling group do not assume any risk and therefore make a profit on only the bonds they sell (selling concession). The members of the underwriting syndicate receive $8.75 for bonds they sell. This is the total takedown which is composed of a selling concession of $5.00 per bond and an additional takedown of $3.75 per bond for their risk. The total spread is $10.00 ($1.25 manager's fee plus $3.75 to the syndicate for risk plus $5.00 profit for sale of bonds). The issuer will receive $990 per bond ($1,000 offering price minus $10.00 underwriting spread) for a total of $49,500,000 ($990 x 50,000 bonds).