What will happen to bond prices in the market if market interest rates rise?

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

Treasury	Yield (%)
Treasury	0.9
AAA corporate	2.2
BBB Corporate	3.2
B Corporate	3.8

-What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon

corporate bond with an AAA rating?

• What is the credit spread on AAA-rated corporate bonds?

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

• How does the credit spread change with the bond rating? Why?

-Your firm has a credit rating of BBB. You notice that the credit spread for five-year maturity A debt is 200 basis points (2.00%). Your firms five-year debt has a coupon rate of 6%. You see that new five-year Treasury notes are being issued at par with a coupon rate of 1.2%. What should the price of your outstanding five-year bonds be per $1000 of face value?