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Zero-coupon corporate bond with a aaa rating


Problem:

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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Finance Basics: Zero-coupon corporate bond with a aaa rating
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