To finance its Air Vapor technology development, Nike Inc. issued one million bonds with a maturity of 10 years, an annual coupon rate of 2.375%, and a face value of $1,000 on Oct 18, 2016. The bonds were offered at a price of $998.58 and make semiannual coupon payments.

What is the annual required rate of return on Nike Inc. bonds? Round your answer to two decimal places in percent form.

Calculate the yield spread of Nike Inc. bonds based on the yields on U.S. Treasury bonds in Table 3. Compare Nike bond yield spread with the yield spreads of Moody’s corporate bonds with different credit ratings in Table 4. How risky is it to invest in Nike bonds? Explain.

Table 3 Treasury Bond Yield Oct 18, 2016 Table 4 Moody’s Bond Spread and Credit Ratings Oct 18, 2016

Maturity	Treasury Bond Yield		Credit Rating	Moody’s Corporate Bond Yield Spread
1 month	0.23%		Aaa	1.75%
3 months	0.34%		Aa	1.87%
6 months	0.48%		A	2.04%
1 year	0.64%		Baa	2.63%
2 years	0.80%		Ba	4.71%
5 years	1.23%		B	5.80%
10 years	1.74%		Caa	7.22%
20 years	2.18%		Ca	10.39%
30 years	2.51%		C	18.17%