Bond A, a $1000 corporate bond with a 5.4% coupon rate, semi--annual coupons, and 30 years to maturity has a YTM of 7.0% APR.
Treasuries are currently yielding 2.9%. What is the credit spread on bond A? Briefly explain what the credit spread represents.
If the YTM drops to 6.2%, what is the percentage change in the price of bond A?
Bond B has a 6.5% coupon rate, semi--annual coupons and 10 years to maturity has a YTM of 7.0%. Explain how the percentage price change of bond B would compare to the percentage change in price of bond A if the YTM drops to 6.4%? (No calculations required).