Question

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


Instructions
Answer the following questions regarding these bond issues:
a. Which issue, A or B, has the higher effective rate of interest? How can you tell?
b. Assume that the bonds of both issues had face values of $1,000 each. How much total interest did each bond from issue A provide investors in 12 months? How much total interest did each bond from issue B provide investors in 12 months?
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 eachissue.


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  • CreatedApril 17, 2014
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