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The following table summarizes yields to maturity on several 1-year, zero-coupon securities: SECURITY YIELD Treasury 2.990% AAA Corporate 3.527% BBB Corporate 3.995% B Corporate 4.653%
The following table summarizes yields to maturity on several 1-year, zero-coupon securities:
| SECURITY | YIELD |
|---|---|
| Treasury | 2.990% |
| AAA Corporate | 3.527% |
| BBB Corporate | 3.995% |
| B Corporate | 4.653% |
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 $1,000?
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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