Go to http://giddy.org/db/corpspreads.htm. The spreads are listed in the form of basis (100 basis = 1 percent) above the Treasury security with the same maturity.

1 - First determine the difference between the AAA and CCC spreads. This indicates how much more of a yield is required on CCC-rated bonds versus AAA- rated bonds. Next, determine the difference between AAA and BBB spreads. Then determine the difference between BBB and CCC spreads.

a. Is the difference larger between AAA and BBB or the BBB and CCC spreads?

b. What does this tell you about the perceived risk of the bonds in these rating categories?

2 - Compare the AAA spread for a short-term maturity (such as two years) versus a long-term maturity (such as 10 years).

a. Is the spread larger for the short-term or the long-term maturity?

b. Offer an explanation for this. 2

3 - Next, compare the CCC spread for a short-term maturity (such as two years) versus a long-term maturity (such as 10 years).

a. Is the spread larger for the short-term or the long-term maturity?

b. Offer an explanation for this.

c. Notice that the difference in spreads for a given rating level among maturities varies with rating level that you assess. Offer an explanation for this