Homework: Chapter 6 Homework (Copy) Score: 0 of 1 pt P 6-26 (similar to) The fol

Question

Homework: Chapter 6 Homework (Copy) Score: 0 of 1 pt P 6-26 (similar to) The following table summarizes the yields to maturity on several one-year, zero-coupon securities: 11 of 22 (4 complete) HW Score: 16. E Que Security Treasury AAA corporate BBB corporate B corporate Yield (%) 3.06 3.15 4.12 4.87 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? 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? The price of this bond will be[ % (Round to three decimal places.) Enter your answer in the answer box and then click Check Answer 3 parts remaining Clear All heck Answer

Explanation / Answer

(a) The price of this bond will be

P = 100 / 1+ 0.0315 = 96.946

(b) The credit spread on AAA-rated corporate bond is

= 0.0315 - 0.0306 = 0.09%

(c) The credit spread on B-rated corporate bond is

= 0.0487 - 0.0306 = 1.81%

(d) Credit spreads are not stable over time when credit spread increases as the lowering the bond price, because lower rated bonds are riskier.

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