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The credit spread on aaa-rated corporate bonds

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Reference no: EM13150421

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

Security


Yield (%)

Treasury


3.1

AAA corporate


3.2

BBB corporate


4.2

B corporate


4.9

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? 

Reference no: EM13150421

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