Question

A sewage treatment revenue bond issue is being underwritten on a negotiated basis. The offering consists of $50,000,000 par value of term bonds. The underwriter has agreed to a spread of $45.00 for each $5,000 bond. The manager has set the additional takedown at $20.00 per bond and the selling concession at $22.00 per bond. If a selling group member sells a $5,000 par value bond directly to the public, the selling group member earns:____________

Answer 1

The multiple choices are :

a.$8

b.$20

c.$22

d.$45

The correct option is C.$22

Step-by-step explanation:

The earnings accruing to the selling group is the selling concession of $22 per $5,000 per bond.

Option A is obviously wrong as there is nothing in the questions that suggest earnings of $8 per bond for the selling group.

Option D is wrong as well because $45 per bond is the spread which is the extra yield to bondholders when compared to investment in government securities