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Constructing a Table of Interest Rates

Using the following website: http://www.bondsonline.com/Todays_Market/Corporate_Bond_Spreads.php put together a table of interest rates for a company with a AAA rating, BB rating and a junk rating.

- Discuss which interest rates should be used for an asset which is 1 year in length, 5 years in length, 15 years in length and 30 years in length.
- Discuss how the interest rate will be impacted if the bond is a government bond or a corporate bond.
- What typically happens to the interest rate as the amount of time increases, i.e. the maturity increases? Explain your answer.
- Why are the interest rates different for different credit ratings? Explain your answer.

Solution Preview

Please see the attached Word document for the correct formatting of the table.

Reuters Corporate Spreads for Banks
Source: http://www.bondsonline.com/Todays_Market/Corporate_Bond_Spreads.php

- The interest rates in this table are grouped based on asset length. To use this table we must understand that the rates in the columns are "basis points" above the treasury spread for that same time period. For example, 195 basis points = 0.195%.
Based on the information in this table, a BB rated bond would pay the ...

Solution Summary

The expert constructs a table of interest rates. The interest rates which are different for different credit ratings are examined.

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