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A corporate bond with a face value of $400,000 selling at a quote of 94.00 today...

A corporate bond with a face value of $400,000 selling at a quote of 94.00 today has a coupon of 5% and matures in 12 years. What is the YTM of this bond? What is its credit spread compared to the Treasury yield of 3.5%? YTM=? Credit Spread=?

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Expert Solution

fv of bond is : $400,000

pv of bond is : 94% * 4,00,000 = $3,76,000

coupon payments (PMT) = $20,000

N = 12 YEARS

THEREFORE, THE YTM IS = 5.7%

THE TREASURY YIELD IS 3.5%

THE CREDIT SPREAD = DIFFERENCE IN THE YIELD OF CORPORATE BONDS - YIELD ON THE TREASURY

= 2.2%

jeff jeffy answered 1 year ago
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