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Security Yield (%) Treasury 3.15 AAA corporate 3.26 BBB corporate 4.28 B corporate 4.91 The following table summarizes the yields to maturity on several one-year,

Security Yield (%) Treasury 3.15 AAA corporate 3.26 BBB corporate 4.28 B corporate 4.91

The following table summarizes the yields to maturity on several one-year, zero-coupon securities:

a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating?

b. What is the credit spread on AAA-rated corporate bonds?

c. What is the credit spread on B-rated corporate bonds?

d. How does the credit spread change with the bond rating? Why?

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