The following table summarizes the yields to maturity on several one-year, zero-coupon securities:What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating?What is the credit spread on AAA-rated corporate bonds?What is the credit spread on B-rated corporate bonds?How does the credit spread change with the bond rating? Why? (Round to three decimal places.) Data table(Click on the following icon in order to copy its contents into a spreadsheet.)Important: The yields displayed are annually compounded yields.SecurityTreasuryAAA corporateBBB corporateB corporatePrintYield (%)3.123.194.234.91Done

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Answered: The following table summarizes the…

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.2.3MBA

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The following table summarizes the yields to maturity on several one-year, zero-coupon securities:

What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating?
What is the credit spread on AAA-rated corporate bonds?
What is the credit spread on B-rated corporate bonds?
How does the credit spread change with the bond rating? Why?

(Round to three decimal places.)

Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Important: The yields displayed are annually compounded yields.
Security
Treasury
AAA corporate
BBB corporate
B corporate
Print
Yield (%)
3.12
3.19
4.23
4.91
Done

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d. How does the credit spread change with the bond rating? Why? (Select the best choice below.)
A. The credit spread increases as the bond rating falls because lower-rated bonds are riskier.
B. The credit spread decreases as the bond rating rises because higher-rated bonds are riskier.
C. The credit spread increases as the bond rating rises because higher-rated bonds are riskier.
D. The credit spread decreases as the bond rating falls because lower-rated bonds are riskier.

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