Reference no: EM133074432
A) Suppose that General Motors Acceptance Corporation issued a bond with 10 years until? maturity, a face value of $1,000?, and a coupon rate of 7.8% ?(annual payments). The yield to maturity on this bond when it was issued was 5.7%. What was the price of this bond when it was? issued?
B) Suppose you purchase a 30?-year, ?zero-coupon bond with a yield to maturity of 6.1%. You hold the bond for five years before selling it.
a. If the? bond's yield to maturity is 6.1% when you sell? it, what is the annualized rate of return of your? investment?
b. If the? bond's yield to maturity is 7.1% when you sell? it, what is the annualized rate of return of your? investment?
c. If the? bond's yield to maturity is 5.1% when you sell? it, what is the annualized rate of return of your? investment?
d. Even if a bond has no chance of? default, is your investment risk free if you plan to sell it before it? matures? Explain.
C) The following table summarizes the yields to maturity on several? one-year, zero-coupon? securities:
Security Yield ?(%) Treasury
3.06 AAA corporate
3.15 BBB corporate
4.14 B corporate
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?
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?
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