The following table summarizes the yields to maturity on several one-year, zero-coupon securities:
Security Yield (%)
Treasury 3.15
AAA corporate 3.30
BBB corporate 4.30
B corporate 5.00
Question 1: What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating?
Question 2: What is the credit spread on AAA-rated corporate bonds?
Question 3: What is the credit spread on B-rated corporate bonds?
Question 4: How does the credit spread change with the bond rating? Why?