A corporate bond has an effective spread duration of five years and a credit spread of 2.75%

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A corporate bond has an effective spread duration of five years and a credit spread of 2.75% (275 bps).

Assume the bond has a 1% annualized expected POD and expected loss severity of 60% in the event of default. What is the expected excess return if the bond is held for six months and the credit spread is expected to fall to 2.25%?

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Fixed Income Analysis

ISBN: 9781119850540

5th Edition

Authors: Barbara S. Petitt

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Question Posted: Nov 08, 2023 01:41 AM

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A corporate bond has an effective spread duration of five years and a credit spread of 2.75%

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Fixed Income Analysis

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