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Bonds-Credit Spreads

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The following table summarizes the yields to maturity on several one-year, zero-coupon securities:

Security Yield (%)
Treasury 3.1
AAA corporate 3.2
BBB corporate 4.2
B corporate 4.9

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?

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Calculates Credit Spreads for AAA-rated corporate bonds and B-rated corporate bonds.

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The following table summarizes the yields to maturity on several one-year, zero-coupon securities:

Security Yield (%)
Treasury 3.10%
AAA corporate 3.20%
BBB corporate 4.20%
B corporate 4.90%

a. What is the price (expressed as a percentage of the face value) of a one-year, ...

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