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BBB-rated corporate bonds have a 1.75% probability of defaulting. The YTM on Treasury bonds is 1.92%. Assume nothing is recovered in default. a. What should

BBB-rated corporate bonds have a 1.75% probability of defaulting. The YTM on Treasury bonds is 1.92%. Assume nothing is recovered in default.

a. What should be the YTM on a BBB-rated bond? What is the credit spread?

b. If there is a risk premium for unexpected losses of 0.75%, then what should the YTM be? What is the credit spread?

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