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

Security Yield (%):

Government of Canada 3.13

AAA corporate 3.24

BBB corporate 4.25

B corporate 4.97

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?