TD Securities agrees to underwrite today a newly issued 10,000 bonds at the agreed-upon price of $1,000 per bond. The issuing corporation is ABC ltd. One month from today, the TD Securities is expected to sell 10,000 bonds to public at large and it is also expected that spot price per bond will be either $990 or $1030. Under each of the expected two levels of spot price of the bond as of the date of the sale, calculate the present values as if date of underwriting of the following:

(a) The proceeds of the issue to ABC Ltd.
(b) The profit (loss) to TD Securities from its underwriting.

Assume that the interest rate is 0.5% per month, and there are no other expenses of the bond issue.

Answer rating: 100% (QA)

a Calculation of proceeds of the issue to ABC Ltd The agreedupon price of the bond is 1000 and TD Se... View the full answer