The major function of investment banks is to help firms to finance via issuing debt or equity. Assume that there are no other costs and expenses.

1) An investment bank agrees to underwrite a $50 million, 10-year, 8 percent coupon par bond issue for a company on a firm commitment basis. The investment bank pays the company on Monday and plans to begin a public sale on Tuesday. If interest rates rise by 0.25 percent, overnight, what will be the impact on the profits of the investment bank? (12.5 marks)

2) Another company wants to sell 2.5 million shares of stock to the public using a best efforts offering. The actual sale price to the public is $15 and the investment bank charges 5 cents per share sold as commission. Assume that only 1.85 million shares can be sold. What are the proceeds to the company from the sale of stock? (12.5 marks)

(Hints: this question is related to Chapter 8 and Chapter 16. Answer the questions with detailed workings. Please keep the format reader-friendly [20% of the marks]. For example, use bullet points and highlights to structure your answers.)