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A BBB-rated corporate bond has a yield to maturity of 5.9%. A U.S. Treasury security has a yield to maturity of 4.4%. These yields are
A BBB-rated corporate bond has a yield to maturity of 5.9%. A U.S. Treasury security has a yield to maturity of 4.4%. These yields are quoted as APRs with semiannual compounding. Both bonds pay semiannual coupons at an annual rate of 4.5% 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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