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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 2.1%, the default rate for BB-rated bonds is 4%, and the loss given default is 30%, then, using the exact formula:
a. What is the spread of the bond relative to the risk-free Treasury of similar maturity ?
b. What is the yield to maturity of the bond?
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