An active fixed-income manager is considering two corporate bond positions for an active portfolio. The first bond
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An active fixed-income manager is considering two corporate bond positions for an active portfolio. The first bond has a BBB rating with a credit spread of 2.75% and an effective spread duration of 6, and the second bond has a BB rating with a credit spread of 3.50% and an effective spread duration of five years.
What is the expected excess spread of the BBB rated bond for an instantaneous 50 bp decline in yields if the bond’s LGD is 40% and the POD is 0.75%?
A. 1.95%
B. 2.45%
C. 2.70%
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ANSWER The expected excess spread for a bond can be calculated using the ...View the full answer
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