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?