For each of the questions below, consider that The Lemonade Stand wants to raise debt capital (e.g., to fund an investment in a new lemonade project) on January 1, 2022. In order to do so, The Lemonade Stand issues two-year corporate bonds on Jan. 1 with an aggregate face value of $100,000, an annual coupon rate of 4.0%, and pays cash coupons annually on Dec. 30^th of each year. The annual market rate of interest at issuance (Jan. 1, 2022) is 6.0%, which the investors determine using rates on similar firms long-term debt with comparable risk characteristics. However, on April 1, 2022 (three months after issuing the corporate bonds), the annual market rate of interest unexpectedly declines to 3.0%, because of changes in the macroeconomic environment, and remains at this rate well past the maturity date of the bond when the firm retires the debt.

1)

How much cash does The Lemonade Stand receive from bond investors on January 1, 2022 (the date the company issues the corporate bonds)? In other words, what is the present value of the bond offering on the issuance date? Please provide a dollar value.

2)

Over the life of the bond, how much total (undiscounted) cash is The Lemonade Stand contractually obligated to pay to back to bondholders (i.e., the amount of principal plus the total amount of coupon payments)? Please provide a dollar value.

3)

The difference between the answers to the above two questions reflects The Lemonade Stand's total cost of issuing the two-year corporate bonds. What is the dollar amount of that total cost? Please provide a dollar value.

4)

What percentage of Lemonade Stand's total cost of issuing the two-year corporate bonds (i.e., your answer to the previous question) does it pay during the second year (i.e., during 2023)? Please provide a percentage.