A BBB-rated corporate bond has a yield to maturity of 8.4 %
A U.S. treasury security has a yield to maturity of 7.0 %
These yields are quoted as APRs with semiannual compounding. Both bonds pay semi-annual coupons at a rate of 8.0 % and have five 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?