Intro

You want to find the price of an A-rated corporate bond with a coupon rate of 7.6%, paid semiannually, a face value of $1,000 and 3 years to maturity.

You've also collected the following information about the Treasury yield curve and corporate bond yield spreads over Treasuries.

Treasury yield curve:

Maturity (years)	1	2	3	5	10	20	30
Coupon rate (%)		1.1	1.7	2.9	3.6	4.1	4.5
Price (% of par)	99.55	99.12	98.42	96.37	96.42	97.83	94.02

Corporate bond yield spreads over Treasuries:

Rating	AAA	AA	A	BBB	BB	B
Yield spread (%)	0.2	0.5	1	1.5	1.8	2.6

Attempt 1/1

Part 1

What is the YTM of the 3 year Treasury?

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Attempt 1/1

Part 2

What should be the price of the corporate bond (in $)?

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Attempt 1/1

Part 3

An investor purchases $10,000,000 face value of this A-rated corporate bond and $ 20,000,000 of the 3 year Treasury. What is the DV01 of this two bond portfolio?

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Attempt 1/1

Part 4

Another investor purchases this A-rated corporate bond. Immediately after purchase, the company's CFO and CEO are arrested for fraud and the company is downgraded to a B rating. The investor sells the bond. What is this investor's percentage return?

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