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?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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​(Click on the following icon
  
in order to copy its contents into a​ spreadsheet.)
Important​:
The yields displayed are annually compounded yields.
 
Security
Yield ​(%)
Treasury
3.13
AAA corporate
3.25
BBB corporate
4.27
B corporate
4.89
The following table summarizes the yields to maturity on several​ one-year, zero-coupon​ securities:
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.
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
nothing​%.
​(Round to three decimal​ places.)
b. What is the credit spread on​ AAA-rated corporate​ bonds?
 
The credit spread on​ AAA-rated corporate bonds is
nothing​%.
​(Round to two decimal​ places.)
c. What is the credit spread on​ B-rated corporate​ bonds?
 
The credit spread on​ B-rated corporate bonds is
nothing​%.
​(Round to two decimal​ places.)
d. How does the credit spread change with the bond​ rating? Why?  ​(Select the best choice​ below.)
 
 
A.
The credit spread increases as the bond rating rises because​ higher-rated bonds are riskier.
 
B.
The credit spread increases as the bond rating falls because​ lower-rated bonds are riskier.
 
C.
The credit spread decreases as the bond rating rises because​ higher-rated bonds are riskier.
 
D.
The credit spread decreases as the bond rating falls because​ lower-rated bonds are riskier.
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