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Consider the following conversation: John: The market these days is a bit crazy. Everyone is talking about a possible recession, and Im worried the credit
Consider the following conversation: John: The market these days is a bit crazy. Everyone is talking about a possible recession, and Im worried the credit spread of my corporate bond will rise. I wonder how much money I could lose on this bond. Sally: If you calculate the MD of the bond, that should give you a good estimate of how much you might lose should credit spreads widen. John: That wont work. MD measures the sensitivity of the bonds price to interest rates, not credit spreads. Ill need to do something else. Do you agree with John?
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