A BBB-rated corporate bond has a yield to maturity of 12.4%. A U.S. Treasury security has a yield to maturity of 10.6%. These yields are quoted as APRs with semiannual compounding. Both bonds pay semi-annual coupons at a rate of 11.1% and have 5 years to maturity. a. What is the price (expressed as a percentage of the face value) of the Treasury bond? b. What is the price (expressed as a percentage of the face value) of the BBB-rated corporate bond? c. What is the credit spread on the BBB bonds?
A BBB-rated corporate bond has a yield to maturity of 12.4%. A U.S. Treasury security has a yield to maturity of 10.6%. These yields are quoted as APRs with semiannual compounding. Both bonds pay semi-annual coupons at a rate of 11.1% and have 5 years to maturity. a. What is the price (expressed as a percentage of the face value) of the Treasury bond? b. What is the price (expressed as a percentage of the face value) of the BBB-rated corporate bond? c. What is the credit spread on the BBB bonds?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A BBB-rated corporate bond has a yield to maturity of 12.4%. A U.S. Treasury security has a yield to maturity of 10.6%. These yields are quoted as APRs with semiannual compounding. Both bonds pay semi-annual coupons at a rate of 11.1% and have 5 years to maturity. a. What is the price (expressed as a percentage of the face value) of the Treasury bond? b. What is the price (expressed as a percentage of the face value) of the BBB-rated corporate bond? c. What is the credit spread on the BBB bonds?
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