Question

Trump Card Co. will issue stock at a retail (public) price of $30.00. The company will receive $27.25 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 $2.88 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 6.7 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

(a)-Spread on the issue in percentage terms

Spread on the issue = $2.75 per share [$30.00 per share - $27.25 per share]

Spread on the issue in percentage terms = [Spread / Public Price] x 100

= [$2.75 / $30.00] x 100

= 9.17%

(b)-Spread be in percentage terms if the firm demands receiving a new price only $2.88 below the public price

Spread on the issue in percentage terms = [Spread / Public Price] x 100

= [$2.88 / $30.00] x 100

= 9.60%

(c)-Net amount to be received by Trump Card Co if they hold the spread down to 6.7 percent based on the public price in part a

Net amount received = Public Price – Spread on public price

= $30.00 – [$30.00 x 6.70%]

= $30.00 – 2.01

= $27.99 per share