Need to know if I am on the right track to the following questions

1. In the past, Abbott Labs had two bond issues outstanding with the following characteristics:

Issue Interest Rate Maturity Current Price

A 6% 2008 115

B 6% 2012 118

a) Which issue, A or B, has the higher effective rate of interest? How can you tell?

Issue A has the higher effective rate of interest.I can tell this because tit can sell at a lower price and the lower the price is the higher the effective rate of the bond is.

b) Assume that the bonds of both issues have face values of $1,000 each. How much total interest does each bond from issue A provide investors in 12 months? How much total interest does each bond from issue B provide investors in 12 months?

Issue A and issue B both have the interest of 6%. The cash amount for both bonds would be $60 that would be provide toinvestors in 12 months.

$1000 x 6% = $60

c) Note that both issues are by the same company, have the same contract rate of interest, and have identical credit ratings. In view of these facts, explain the current price difference of each issue.

The current price different of each issue is the length of time that the bond needs to mature which would be a factor in the current market. The close the term of the bond reaches its maturity date the bond will reach its maturity value. The issues with bond A will reach maturity 4 years ahead of bond B The issue of bond A is that the market price is closer to face value over the issues of bond B.