A BBB-rated corporate bond has a yield to maturity of 13.7%. A U.S. Treasury security has a

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A BBB-rated corporate bond has a yield to maturity of 13.7%. A U.S. Treasury security has a yield to maturity of 11.7%. These yields are quoted as APRs with semiannual compounding.

Both bonds pay semiannual coupons at a rate of 11.9% and have five years to maturity.

(Assume the par value of each of the bond to be $100.)

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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Corporate Finance

ISBN: 9781292446318

6th Global Edition

Authors: Jonathan Berk, Peter DeMarzo

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Question Posted: Apr 03, 2024 03:00 AM

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A BBB-rated corporate bond has a yield to maturity of 13.7%. A U.S. Treasury security has a

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To calculate the price of each bond we can use the present value formula for bonds which discounts the future cash flows coupon payments and face valu...View the full answer

Corporate Finance

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