Question
The following table summarizes yields to maturity on several 1-year, zero-coupon securities: Security Yield Treasury % AAA Corporate % BBB Corporate % B Corporate %
The following table summarizes yields to maturity on several 1-year, zero-coupon securities: Security Yield Treasury % AAA Corporate % BBB Corporate % B Corporate %
Security | Yield |
Treasury | 2.960% |
AAA Corporate | 3.342% |
BBB Corporate | 3.661% |
B Corporate | 4.444% |
a. What is the price (expressed as a percentage of the face value) of a 1-year, zero-coupon corporate bond with a AAA-rating and a face value of ?
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? Note: Assume annual compounding.
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