Question
In: Finance
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: Security Yield (%)...
The following table summarizes the yields to maturity on several one-year, zero-coupon securities:
|
Security |
Yield (%) |
|
Treasury |
3.08 |
|
AAA corporate |
3.20 |
|
BBB corporate |
4.22 |
|
B corporate |
4.87 |
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?
Solutions
Expert Solution
a.
Price of one year AAA rated zero coupon bond = 1,000/(1.032) = $968.99
b.
Credit Spread on AAA rated bond = 0.032 - 0.0308 = 0.12%
b.
Credit Spread on B rated bond = 0.0487 - 0.0308 = 1.79%
c.
As bond rating decreases, credit spread on bond increases due to credit default risk
jeff jeffy answered 2 years agoRelated Solutions
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: Security Yield (%)...
The following table summarizes the yields to maturity on
several one-year, zero-coupon securities:
Security
Yield (%)
Treasury
3.093.09
AAA corporate
3.153.15
BBB corporate
4.204.20
B corporate
4.864.86
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...
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: Security Yield (%)...
The following table summarizes the yields to maturity on
several one-year, zero-coupon securities:
Security
Yield (%)
Treasury
3.12
AAA corporate
3.26
BBB corporate
4.26
B corporate
4.96
a. What is the price (expressed as a percentage of the face
value) of a one-year, zero-coupon corporate bond with a
AAArating?
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?...
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: Security Yield (%)...
The following table summarizes the yields to maturity on
several one-year, zero-coupon securities: Security Yield (%)
Treasury 3.063.06 AAA corporate 3.183.18 BBB corporate 4.184.18 B
corporate 4.844.84 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...
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: Security Yield (%)...
The following table summarizes the yields to maturity on
several one-year, zero-coupon securities: Security Yield (%)
Treasury 3.08 AAA corporate 3.15 BBB corporate 4.17 B corporate
4.91
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...
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: Security Yield (%)...
The following table summarizes the yields to maturity on
several one-year, zero-coupon securities:
Security
Yield (%)
Treasury
3.063.06
AAA corporate
3.133.13
BBB corporate
4.124.12
B corporate
4.884.88
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...
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: Security Yield (%)...
The following table summarizes the yields to maturity on
several one-year, zero-coupon securities: Security Yield (%)
Treasury 3.07 AAA corporate 3.19 BBB corporate 4.14 B corporate
4.85 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...
The following table summarizes yields to maturity on several 1-year, zero-coupon securities:
The following table summarizes yields to maturity on several 1-year, zero-coupon securities:SecurityYieldTreasury2.860%AAA Corporate2.892%BBB Corporate 3.107%B Corporate3.950%a. What is the price (expressed as a percentage of the face value) of a 1-year, zero-coupon corporate bond with a AAA-rating and a face value of $1,000? 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?Note: Assume annual compounding.
The following table summarizes the yields to maturity on several three-year bonds: Security Yield (%) Treasury...
The following table summarizes the
yields to maturity on several three-year bonds:
Security
Yield (%)
Treasury
2.15
AAA corporate
3.25
BBB corporate
4.25
B corporate
5.69
What is the credit default spread on
B-rated corporate bonds?
1.0%
1.10%
2.15%
3.54%
5.69%
The following table summarizes the yields to maturity onseveral one-year, zero-coupon securities:SecurityYield (%)...
The following table summarizes the yields to maturity on
several one-year, zero-coupon securities:SecurityYield (%)Treasury3.08AAA corporate3.16BBB corporate4.20B corporate4.85a. 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
Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity 1...
Assume the zero-coupon yields on default-free securities are
as summarized in the following table:
Maturity
1 year
2 years
3 years
4 years
5 years
Zero-Coupon Yields
4.00%
4.30%
4.50%
4.70%
4.80%
What is the price of a three-year, default-free security with a
face value of $1,000 and an annual coupon rate of 4%? What is the
yield to maturity for this bond?
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