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For a bond issue that sells for more than the bond face amount, the effective interest rate is

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8. Machina Corporation is financing an ongoing construction project. The firm needs $8 million of new capital during each of the next three years. The firm has a choice of issuing new debt and equity each year as the funds are needed, or issuing the debt now and the equity later. The firm's capital structure is 40 percent debt and 60 percent equity. Flotation costs for a single debt issue would be 1.6 percent of the gross debt proceeds. Yearly flotation costs for three separate issues of debt would be 3.0 percent of the gross amount. Ignoring time value effects due to timing of the cash flows, what is the absolute difference in dollars saved by raising the needed debt all at once in a single issue rather than in three separate issues?a.$0b.$171,387c.$140,809d.$156,098e.$134,400

5. Which of the following statements about listing on a stock exchange is most correct?a.Listing is a decision of more significance to a firm than going public.b.Any firm can be listed on the NYSE as long as it pays the listing fee.c.Listing provides a company with some "free" advertising, and status as a listed company may enhance the firm's prestige.d.Listing reduces the reporting requirements for firms, because listed firms file reports with the exchange rather than with the SEC.e.Statements b and c are both correct.

6. Which of the following is not a task that investment bankers perform?a.They buy securities from corporations trying to raise funds.b.They take deposits from investors and make loans to corporations.c.They resell securities purchased from corporations to investors.d.They help corporations design securities with the features that are most attractive to investors given existing market conditions.

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