The following table summarizes yields to maturity on several 1-year, zero-coupon, $1000 face-value securities:

Security	Yield
US Treasury	2.880%
AAA Corporate	3.702%
BBB Corporate	4.111%
B Corporate	4.938%

a. What is the price of a 1-year, zero-coupon corporate bond with a AAA-rating and a face value of $1,000?

b. A credit spread is the difference between the anticipated yield to maturity on a corporate bond [given in the above table] and the concurrent yield to maturity on a US Treasury security of the same time to maturity. 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 (and discounting)

a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA-rating and a face value of $1,000?

The price is $ enter your response here. (Round to two decimal places.)

b. See detailed explanation above for part b. What is the credit spread on AAA-rated corporate bonds?

The credit spread on AAA-rated corporate bonds is enter your response here%. (Round to three decimal places.)

c. What is the credit spread on B-rated corporate bonds?

The credit spread on B-rated corporate bonds is enter your response here%. (Round to three decimal places.)

d.How does the credit spread change with the bond rating? Why?(Select the best choice below.)

A.The credit spread decreases as the bond rating falls, because lower-rated bonds are riskier.

B.The credit spread decreases as the bond rating increases, because higher-rated bonds are riskier.

C.The credit spread increases as the bond rating falls, because lower-rated bonds are riskier.

D. The credit spread increases as the bond rating increases, because higher-rated bonds are riskier.