Question

Trump Card Co. will issue stock at a retail (public) price of $34.00. The company will receive $31.50 per share.

  
a. What is the spread on the issue in percentage terms? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
  

b. If the firm demands receiving a new price only $2.69 below the public price suggested in part a, what will the spread be in percentage terms? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
  

c. To hold the spread down to 5.9 percent based on the public price in part a, what net amount should Trump Card Co. receive? (Do not round intermediate calculations and round your answer to 2 decimal places.)
  

Answer 1

Solution:
a.	The spread on the issue in percentage terms = 7.35%
Working Notes:
	The spread on the issue in percentage terms = (Public Price - amount received per share) /Public Price
		=($34 - $31.50)/$34
		=$2.50/$34
		=0.0735294
		=7.35 %
b.	The spread on the issue in percentage terms = 7.91%
Working Notes:
	The spread on the issue in percentage terms = Spread per share) /Public Price
		=$2.69/$34
		=0.079117647
		=0.0791
		=7.91%
c.	Net amount should Trump Card Co. receive = $31.99		per share
Working Notes:
	Public price	$34
	Less: Spread	$2.01
	[$34 x 5.9% = 2.006 ]
	Net amount should Trump Card Co. receive	$31.99
Please feel free to ask if anything about above solution in comment section of the question.