A BBB-rated corporate bond has a yield to maturity of

12.4%.

A U.S. Treasury security has a yield to maturity of

10.5%.

These yields are quoted as APRs with semiannual compounding. Both bonds pay semiannual coupons at an annual rate of

11.5%

and have five years to maturity.

a. What is the price (expressed as a percentage of the face value) of the Treasury bond?

b. What is the price (expressed as a percentage of the face value) of the BBB-rated corporate bond?

c. What is the credit spread on the BBB bonds?

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Part 1

a. What is the price (expressed as a percentage of the face value) of the Treasury bond?

The price of the Treasury security as a percentage of face value is

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