16) Consider the following yields to maturity on various one-year, zero-coupon securities:
Security Yield (%)
Treasury 5.0
AAA
Corporate 5.2
BBB
Corporate 5.8
B Corporate 6.6
The credit spread of the BBB corporate bond is closest to ________.
A) 0.8%
B) 1.10%
C) 1.60%
D) 0.40%
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
17) Consider the following yields to maturity on various one-year, zero-coupon securities:
Security Yield (%)
Treasury 4.7
AAA
Corporate 4.9
BBB
Corporate 5.7
B Corporate 6.1
The credit spread of the B corporate bond is closest to ________.
A) 1.4%
B) 1.70%
C) 2.80%
D) 0.70%
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
38
18) Luther Industries needs to raise $25 million to fund a new oice complex. The company
plans on issuing ten-year bonds with a face value of $1,000 and a coupon rate of 7.5%
(annual payments). The following table summarizes the YTM for similar ten-year corporate
bonds of various credit ratings:
Ratin
g AAA AA A BBB BB
YTM 6.60% 6.80% 6.90% 7.30% 7.80%
Assuming that Luther’s bonds are rated AAA, their price will be closest to ________.
A) $1064
B) $1277
C) $1490
D) $852
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
39
19) Luther Industries needs to raise $25 million to fund a new oice complex. The company
plans on issuing ten-year bonds with a face value of $1,000 and a coupon rate of 7.3%
(annual payments). The following table summarizes the YTM for similar ten-year corporate
bonds of various credit ratings:
Ratin
g AAA AA A BBB BB
YTM 6.55% 6.75% 6.85% 7.25% 7.75%
Assuming that Luther’s bonds receive a AAA rating, the number of bonds that Luther must
issue to raise the needed $25 million is closest to ________.
A) 28,469
B) 33,213
C) 23,724
D) 18,979
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
40
20) Luther Industries needs to raise $25 million to fund a new oice complex. The company
plans on issuing ten-year bonds with a face value of $1,000 and a coupon rate of 6.0%
(annual payments). The following table summarizes the YTM for similar ten-year corporate
bonds of various credit ratings:
Ratin
g AAA AA A BBB BB
YTM 6.63% 6.83% 6.93% 7.33% 7.83%
Assuming that Luther’s bonds receive a AA rating, the price of the bonds will be closest to
________.
A) $1129
B) $941
C) $1318
D) $753
AACSB Objective: Analytic Skills
Author: JP
Question Status: Revised
41
21) Luther Industries needs to raise $25 million to fund a new oice complex. The company
plans on issuing ten-year bonds with a face value of $1,000 and a coupon rate of 5.6%
(annual payments). The following table summarizes the YTM for similar ten-year corporate
bonds of various credit ratings:
Ratin
g AAA AA A BBB BB
YTM 6.86% 7.06% 7.16% 7.56% 8.06%
Assuming that Luther’s bonds receive a AA rating, the number of bonds that Luther must
issue to raise the needed $25 million is closest to ________.
A) 27,848
B) 33,417
C) 38,987
D) 22,278
AACSB Objective: Analytic Skills
Author: JP
Question Status: Revised
42
Use the information for the question(s) below.
Luther Industries needs to raise $25 million to fund a new oice complex. The company
plans on issuing ten-year bonds with a face value of $1,000 and a coupon rate of 7.0%
(annual payments). The following table summarizes the YTM for similar ten-year corporate
bonds of various credit ratings:
Rating AAA AA A BBB BB
YTM 6.70% 6.80% 7.00% 7.40% 8.00%
22) What rating must Luther receive on these bonds if they want the bonds to be issued at
par?
A) A
B) B
C) BBB
D) AA
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
23) Suppose that when these bonds were issued, Luther received a price of $972.42 for
each bond. What is the likely rating that Luther’s bonds received?
A) AA
B) BBB
C) B
D) A
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
43