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

10.7%.

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

8.8%.

These yields are quoted as

APRs

with semiannual compounding. Both bonds pay semi-annual coupons at a rate of

8.9%

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?