What the market yield rate would you expect

Reference no: EM133377194

Question: Suppose you observed that one-year T-bills are trading with a yield to maturity (YTM) of 4.75%. The yield spread between AAA and BB rated corporate bonds is 130 basis points. The maturity yield differential between the one-year T-bills and three-year government bonds is 45 basis points.

a) What the market yield rate would you expect on a three-year BB rated corporate bond that pays a 7.25% annual coupon?

b) How much would you pay for this three-year BB rated corporate bond if its coupon rate was 7.25% with interest paid annually?

Reference no: EM133377194

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