Question
1a.Suppose the current, zero-coupon, yield curve for risk-free bonds is as follows: Maturity (years) 1 2 3 4 5 Yield to Maturity 4.21% 4.54% 4.78%
1a.Suppose the current, zero-coupon, yield curve for risk-free bonds is as follows:
Maturity (years) | 1 | 2 | 3 | 4 | 5 |
Yield to Maturity | 4.21% | 4.54% | 4.78% | 4.95% | 5.30% |
a. What is the price per $100 face value of a 3-year, zero-coupon, risk-free bond? (Round to the nearest cent.) b. What is the price per $100 face value of a 4-year, zero-coupon, risk-free bond?c. What is the risk-free interest rate for a 1-yearmaturity?
1b.The following table summarizes yields to maturity on several 1-year, zero-coupon securities:
Security | Yield |
Treasury | 2.870% |
AAA corporate | 3.638% |
BBB corporate | 4.105% |
B corporate | 5.061% |
a. What is the price (expressed as a percentage of the face value) of a 1-year, zero-coupon corporate bond with a AAA-rating and a face value of $1,000? b. What is the credit spread on AAA-rated corporate bonds?(Round to three decimal places.) c. What is the credit spread on B-rated corporate bonds? d.How does the credit spread change with the bond rating? Why?
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