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The following table summarizes the yields to maturity on several one-year, zero-coupon securities. Security Yield (%) Government of Canada 3.11 AAA corporate 3.18 BBB corporate
The following table summarizes the yields to maturity on several one-year, zero-coupon securities.
| Security | Yield (%) |
|---|---|
| Government of Canada | 3.11 |
| AAA corporate | 3.18 |
| BBB corporate | 4.25 |
| B corporate | 4.89 |
a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with an 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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