Reference no: EM132655964
The following table summarises the yields to maturity on several one-year, zero-coupon securities.
Security Yield (%)
Treasury 3.01%
AAA corporate 3.16%
BBB corporate 4.11%
B corporate 4.82%
Problem 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? (Round to the nearest cent.)
Problem b) What is the credit spread on AAA-rated corporate bonds? (Round to two decimal places.)
Problem c) What is the credit spread on B-rated corporate bonds? (Round to two decimal places.)
Problem d) How does the credit spread change with the bond rating? Why? (Select the best choice below.)
Option 1: The credit spread decreases as the bond rating falls because lower-rated bonds are riskier.
Option 2: The credit spread increases as the bond rating falls because lower-rated bonds are riskier.
Option 3: The credit spread increases as the bond rating rises because higher-rated bonds are riskier.
Option 4: The credit spread decreases as the bond rating rises because higher-rated bonds are riskier.