The following table summarizes the yields to maturity on several one-year, zero-coupon securities: What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating? What is the credit spread on AAA-rated corporate bonds? What is the credit spread on B-rated corporate bonds? How does the credit spread change with the bond rating? Why? (Round to three decimal places.)
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating? What is the credit spread on AAA-rated corporate bonds? What is the credit spread on B-rated corporate bonds? How does the credit spread change with the bond rating? Why? (Round to three decimal places.)
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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The following table summarizes the yields to maturity on several one-year, zero-coupon securities:
- What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating?
- What is the credit spread on AAA-rated corporate bonds?
- What is the credit spread on B-rated corporate bonds?
- How does the credit spread change with the bond rating? Why?
(Round to three decimal places.)
Transcribed Image Text:Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Important: The yields displayed are annually compounded yields.
Security
Treasury
AAA corporate
BBB corporate
B corporate
Print
Yield (%)
3.12
3.19
4.23
4.91
Done
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Transcribed Image Text: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 falls because lower-rated bonds are riskier.
B. The credit spread decreases as the bond rating rises because higher-rated bonds are riskier.
C. The credit spread increases 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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