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The following table summarizes the yields to maturity on several one-year, zero-coupon securities. Security Yield (%) Government of Canada=3.06 AAA corporate= 3.12 BBB corporate= 4.17

The following table summarizes the yields to maturity on several one-year, zero-coupon securities. Security Yield (%)

Government of Canada=3.06

AAA corporate= 3.12

BBB corporate= 4.17

B corporate =4.81

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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