Question
A risk analyst seeks to find out the credit-linked yield spread on a BB-rated one-year coupon bond issued by a multinational petroleum company. If the
A risk analyst seeks to find out the credit-linked yield spread on a BB-rated one-year coupon bond issued by a multinational petroleum company. If the prevailing annual risk-free rate is 3.45%, the default rate for BB-rated bonds is 5%, and the loss given default is 55%, then, using the exact formula:
a. What is the spread of thebond relative to the risk-free Treasury of similar maturity?
b. What is the yield to maturity of the bond?
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Financial Institutions Management A Risk Management Approach
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders
8th edition
978-0078034800, 78034809, 978-0071051590
