Franklin Kite Company, a kite manufacturer in Philadel- phia, Pa., needs $10,000 to retool its assembly...

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Franklin Kite Company, a kite manufacturer in Philadel- phia, Pa., needs $10,000 to retool its assembly line to produce the next generation of the "electric kite." As a finance officer with the company, you have decided to raise the entire $10,000 by selling 10 bonds with a face value of $1,000 each. You decide to offer an annual coupon rate on the bonds of 6%. You have been asked to explain the bond program to the board of directors in Philadelphia. Answer these ques- tions to prepare for your presentation. Franklin kite Company $1,000 General Obligation Construction Bond 6% Dated January 1, 2005 Due January 1, 2010 5% 2% Interest Payable January 1, 2006, and annually thereafter National Bank-Anytnin, U.S.A. 1. Identify the following features of each of the 10 bonds: Length of maturity 5 years $ 1000 Face value (or par value) Coupon rate 6% 2. What will be the amount of annual interest payment on each bond? $ 60 3. What is the total interest payment for Franklin Kite Company each year for ALL 10 bonds? $600 4. If the potential buyers for Franklin Kite Co. bonds are concerned about the future of the company, these bonds might be considered risky. How could the company make the bonds more attractive to buyers? issue bonds at a discount 5. If similar bonds are issued with a coupon rate of 8%, will the price of Franklin Kite Company bonds rise or fall? Fall from par value 6. If similar bonds are issued with a coupon rate of 2%, will the price of Franklin Kite Company bonds rise or fall? 7. Calculate the market price of Franklin Kite Company bonds if similar bonds have the following yields: Other Bonds' Yield Coupon Payment Market Price 8% $60 $60 $60 8. What is the relationship between the price of a bond and the rate of return on the bond? Franklin Kite Company, a kite manufacturer in Philadel- phia, Pa., needs $10,000 to retool its assembly line to produce the next generation of the "electric kite." As a finance officer with the company, you have decided to raise the entire $10,000 by selling 10 bonds with a face value of $1,000 each. You decide to offer an annual coupon rate on the bonds of 6%. You have been asked to explain the bond program to the board of directors in Philadelphia. Answer these ques- tions to prepare for your presentation. Franklin kite Company $1,000 General Obligation Construction Bond 6% Dated January 1, 2005 Due January 1, 2010 5% 2% Interest Payable January 1, 2006, and annually thereafter National Bank-Anytnin, U.S.A. 1. Identify the following features of each of the 10 bonds: Length of maturity 5 years $ 1000 Face value (or par value) Coupon rate 6% 2. What will be the amount of annual interest payment on each bond? $ 60 3. What is the total interest payment for Franklin Kite Company each year for ALL 10 bonds? $600 4. If the potential buyers for Franklin Kite Co. bonds are concerned about the future of the company, these bonds might be considered risky. How could the company make the bonds more attractive to buyers? issue bonds at a discount 5. If similar bonds are issued with a coupon rate of 8%, will the price of Franklin Kite Company bonds rise or fall? Fall from par value 6. If similar bonds are issued with a coupon rate of 2%, will the price of Franklin Kite Company bonds rise or fall? 7. Calculate the market price of Franklin Kite Company bonds if similar bonds have the following yields: Other Bonds' Yield Coupon Payment Market Price 8% $60 $60 $60 8. What is the relationship between the price of a bond and the rate of return on the bond?

Answer rating: 100% (QA)

It focuses on the relationship between the price of a bond and its rate of return specifically how the market price of a bond adjusts to prevailing interest rates The scenario presented is that the Fr... View the full answer