Question

The following table summarizes yields to maturity on several 1-year, zero-coupon securities: Security Yield ecur Treasury АAА Сoгрoгate ВBB Coгporate 2.910% 3.522% 4.341% B Corporate 5.210% a. What is the price (expressed as a percentage of the face value) of a 1-year, zero-coupon corporate bond with a AAA-rating and a face value of $1,000? 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? a. What is the price (expressed as a percentage of the face value) of a 1-year, zero-coupon corporate bond with a AAA-rating and a face value of $1,000? (Round to three decimal places.) The price, expressed as a percentage of the face value, is --coup

Answer 1

1.
=1/(1+yield on 1 year corporate bond with AAA rating)
=1/1.03522
=96.60%

2.
=3.522%-2.910%
=0.61%

3.
=5.210%-2.910%
=2.30%

4.
Lower the rating the higher the probability of default