A recent annual report of Shaw Communications Inc. contained the following note:
10. LONG- TERM DEBT
On December 7, 2010, the Company issued $ 500,000,000 senior notes at a rate of 5.50% due December 7, 2020. The effective rate is 5.55% due to the discount on the issuance.
After reading this note, one student asked why Shaw didn’t simply sell the notes for an effective yield of 5.55 percent and avoid having to account for a very small discount over the life of the notes. Prepare a written response to this question.