1) .A BBB-ratedcorporate bond has a yield to maturity of 9.8%. A U.S. treasury security has a yield to maturity of 8.3%. These yields are quoted asAPRswith semiannual compounding. Both bonds paysemi-annual coupons at a rate of 9.1% and have five years to maturity.

a. What is the price(expressed as a percentage of the facevalue) of the treasurybond?

b. What is the price(expressed as a percentage of the facevalue) of theBBB-rated corporatebond?

c. What is the credit spread on the BBBbonds?

2) HMK Enterprises would like to raise $ 10.0 million to invest in capital expenditures. The company plans to issuefive-year bonds with a face value of $1,000 and a coupon rate of 6.54% annual payments. The following table summarizes the yield to maturityforfive-year (annual-payment) coupon corporate bonds of various ratings:

AAA= 6.19%

AA=6.31%

A=6.54%

BBB=6.93%

BB=7.59%

a. Assuming the bonds will be ratedAA, what will be the price of thebonds?

b. How much of the total principal amount of these bonds must HMK issue to raise $10.0 million today, assuming the

the bonds are AArated? (Because HMK cannot issue a fraction of abond, assume that all fractions are rounded to the nearest wholenumber.)

c. What must be the rating of the bonds for them to sell atpar?

d. Suppose that when the bonds areissued, the price of each bond is $957.62What is the likely rating of thebonds? Are they junkbonds?