The following table summarizes the yields to maturity on several one-year, zero-coupon securities: 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? BIED a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate b The price of this bond will be %. (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 % (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 %. (Round to two decimal places.) d. How does the credit spread change with the bond rating? Why? (Select the best choice below) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Important: The yields displayed are annually compounded yields. Yield (%) 3.08 3.21 Security Treasury AAA corporate BBB corporate B corporate Print 4.19 4.87 Done

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Bond Valuation

Bond valuation are the notes issued by the corporation to raise long-term funds for the business. The corporations are required to pay the interest on such liabilities at a specified rate of interest (termed as coupon rate) at specified dates which may be on semi-annual or annual basis. These interest payments may be in the form of coupons.