13.

Issuer	Rating	Yield	Spread	Treasury Benchmark
Corporation A	Triple A	7.87%	50	10
Corporation B	Double A	7.77%	40	10
Corporation C	Triple A	8.60%	72	30
Corporation D	Double A	8.66%	78	30
Corporation E	Triple B	9.43%	155	30

a. What is meant by rating?

b. Which of the five bonds has the greatest credit risk?

c. What is meant by spread?

d. What is meant by Treasury benchmark?

e. Why does each spread reported reflect a risk premium?

14. For the corporate bond issues reported in the previous question, answer the following questions:

a. Should a triple-A-rated bond issue offer a higher or lower yield than a double-Arated bond issue of the same maturity? b. What is the spread between the corporation A's issue and corporation B's?

c. Is the spread reported in part (b) consistent with your answer to part (a)?

d. The yield spread between these two bond issues reflects more than just credit risk. What other factors would the spread reflect?

e. Corporation B's issue is not callable. However, corporation A's issue is callable. How does this information help you in understanding the spread between these two issues?