Credit risk measures using credit spreads. Consider the following time series observations of the annual yields on risk-free and risky bonds. Compute the expected percentage loss per year for the risky bonds implied by these yields. (See Example 7 in Chapter 6 for guidance on how to solve this problem.)

U.S. Treasury 10-year notes Gigantic Corp 10-year MTN

2.102 3.224

2.107 3.230

2.111 3.235

2.111 3.236

2.113 3.239

Show all calculations All prices and interest rates must be expressed to three decimal places

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5. Credit risk measures using credit spreads. Consider the following time series observations of the annual yields on risk-free and risky bonds. Compute the expected percentage loss per year for the risky bonds implied by these yields. (See Example 7 in Chapter 6 for guidance on how to solve this problem.) U.S. Treasury 10-year notes 2.102 2.107 2.111 2.005 2.113 Vandalay Industries 10-year MTN 3.221 3.130 3.235 3.136 3.039 Average of Treasury note yields = 2.088 Average of Gigantic Corp yields = 3.152 ay = 3.152 - 2.088 = 1.064 5. Credit risk measures using credit spreads. Consider the following time series observations of the annual yields on risk-free and risky bonds. Compute the expected percentage loss per year for the risky bonds implied by these yields. (See Example 7 in Chapter 6 for guidance on how to solve this problem.) U.S. Treasury 10-year notes 2.102 2.107 2.111 2.005 2.113 Vandalay Industries 10-year MTN 3.221 3.130 3.235 3.136 3.039 Average of Treasury note yields = 2.088 Average of Gigantic Corp yields = 3.152 ay = 3.152 - 2.088 = 1.064