PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 23, Problem 2PS
Bond ratings* In February 2018, Aaa bonds yielded 3.38%, Baa bonds yielded 4.51%, and comparable Treasuries yielded 2.86%.
- a. What was the credit spread on Aaa bonds?
- b. What was the spread on Baa bonds?
- c. What do you think would be the difference in price (as a percent of face value) between a typical 5% 10-year Baa bond and a similar Treasury bond?
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a. What is the price (expressed as a percentage of the face value) of a 1-year, zero-coupon corporate bond with a AAA rating and a face value of $1,000?
b. What is the credit spread on AAA-rated corporate bonds?
c. What is the credit spread on B-rated corporate bonds?
d. How does the credit spread change with the bond rating? Why?
Note: Assume annual compounding.
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Treasury notes and bonds. Use the information in the following table: Assume a $100,000 par value. What is the yield to maturity of the August 2001 Treasury bond with semiannual
payment? Compare the yield to maturity and the current yield. How do you explain this relationship?
What is the yield to maturity of the August 2001 Treasury bond?
% (Round to three decimal places)
Data table
(Click on the following icon in order to copy its contents into a spreadsheet)
Today is February 15, 2008
Type
Bond
Issor
Date
Aug 2001
Price (per
$100
par value)
81.58
Coupon
Rate
3.75%
Maturity
Date
8-15-2011
COO
YTM
Current
Vield
4.597%
Rating
AAA
Consider the following information for a period of years:
Arithmetic Mean
Long-term government bonds
7.6%
Long-term corporate bonds
7.7
Inflation
4.6
What is the real return on long-term government bonds?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
What is the real return on long-term corporate bonds?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
Chapter 23 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 23 - Expected yield You own a 5% bond maturing in two...Ch. 23 - Bond ratings In February 2018, Aaa bonds yielded...Ch. 23 - Bond ratings It is 2030 and the yields on...Ch. 23 - Prob. 4PSCh. 23 - Default option Other things equal, would you...Ch. 23 - Prob. 6PSCh. 23 - Prob. 7PSCh. 23 - Default option Digital Organics has 10 million...Ch. 23 - Prob. 9PSCh. 23 - Prob. 10PS
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