You are at work late on a Friday and your boss walks up. She says, "You took a finance course in university, didn't you? Were looking at acquiring several new bagel companies and we need to raise $50 Million dollars. To do that, were going to sell 50,000 five-year bonds at $1,000 each. Well have a 7% coupon interest rate for the bonds and interest will be paid once per year.

I was wondering, she says thoughtfully, if the bonds had an 8% yield to maturity, what would be the difference in the amount raised? Remember, the coupon interest rate on the bonds will still pay 7%.

Dont forget, we have to pay the investment bankers 2% off the total amount of money raised. If we do that, how much will we get in total?

Could you write that up tonight before you leave? Thanks. Here. Have a bagel.

How much will your company get from the offering using the yield to maturity your boss suggested?