8-3. (Problem 8-24) The following table summarizes theyields to maturi

QUESTION

8-3. (Problem 8-24) The following table summarizes theyields to maturity on several one-year, zero-couponsecurities:SecurityYield %Treasury3.1AAA Corporate3.2BBB Corporate4.2B Corporate4.9a. What is the price (expressed as a percentage of theface value) of a one-year, zero-couponcorporat
(a) Face Value (or) Par value of bond (F) = $1000 Number of Years toMaturity(t) = 1 year Coupon Rate (C) =0% Yield to Maturity(r) = 3.2% Current Bonds Price = ? Bond Value = C*[1-1/(1 r) t ] / r F/(1 r) t = $0[1-1/(1 0.032) 1 ] / 0.032 $1000 /(1 0.032) 1 = $0 [1-1/(1.032) 1 ] / 0.032 $1000 /(1.032) 1 = $0 $968.99 = $968.99 Bond Price = $968.99 Percentage of the Face Value =

9% Credit Spread: Credit Spreadis the Yield Spread (or) Difference in Yield between differentsecurities, due to different quality. Yield Spread: Yieldspread is the difference between the Quoted rates of return on twodifferent investments. Hope this helps

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