Chapter 6, Problem 28P

a)

Summary Introduction

To determine: The price of a one-year zero-coupon corporate bond with a AAA rating.

Introduction:

The bond rating is a credit rating which represents the creditworthiness of both the corporate and the government bond. Creditworthiness represents the ability to pay a debt or risk of getting default on a debt. Thus, bond rating states the degree of risk associated with a bond. This rating is given by credit rating agencies like S&P, Moody, and so on.

b)

Summary Introduction

To determine: Credit spread on the AAA-rated corporate bonds.

Introduction:

The bond rating is a credit rating which represents the creditworthiness of the both corporate and government bond. Creditworthiness represents the ability to pay a debt or risk of getting default on a debt. Therefore, bond rating states the degree of risk associated with the bond. This rating is given by credit rating agencies like S&P, Moody, and so on.

c)

Summary Introduction

To determine: Credit spread on B-Rated corporate bonds

Introduction:

The bond rating is a credit rating which represents the creditworthiness of the both corporate and government bond. Creditworthiness represents the ability to pay the debt or risk of getting default on a debt. Therefore, bond rating states the degree of risk associated with a bond. This rating is given by credit rating agencies like S&P, Moody, and so on.

d)

Summary Introduction

To determine: The reason behind credit spread changes with the bond rating.

Introduction:

The bond rating is a credit rating which represents the creditworthiness of both the corporate and government bond. Creditworthiness represents the ability to pay the debt or risk of getting default on a debt. Therefore, bond rating states the degree of risk associated with a bond. This rating is given by credit rating agencies like S&P, Moody, and so on.