Question
A BBB-rated corporate bond has a yield to maturity of 8.2%. A U.S. Treasury security has a yield to maturity of 6.5%. These yields are
"A BBB-rated corporate bond has a yield to maturity of 8.2%. A U.S. Treasury security has a yield to maturity of 6.5%. These yields are quoted as APRs with semiannual compounding. Both bonds pay semiannual coupons at a rate of 7% and have five years to maturity. Note: assume a $1,000 face value.
| 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? | |||
| BBB bond YTM | 8.2% | |||
| Treasury YTM | 6.5% | |||
| Coupon rate | 7% | |||
| Maturity (years) | 5 | |||
| Face value | $1,000 | |||
| a. | What is the price (expressed as a percentage of the face value) of the Treasury bond? | |||
| Coupon | ||||
| Number of periods | ||||
| Semiannual YTM | ||||
| Bond price | ||||
| Percentage of face value | ||||
| b. | What is the price (expressed as a percentage of the face value) of the BBB-rated corporate bond? | |||
| Semiannual YTM | ||||
| Bond price | ||||
| Percentage of face value | ||||
| c. | What is the credit spread on the BBB bonds? | |||
| Spread |
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Empirical Techniques In Finance
Authors: Ramaprasad Bhar, Shigeyuki Hamori
1st Edition
3642064175, 978-3642064173
