Question

Consider the following yields to maturity on various one-year zero-coupon securities:

Security Yield (%)
Treasury 4.6
AAA corporate 4.8
BBB corporate 5.6
B Corporate 6.2

The credit spread of the BBB corporate bond is closest to:

A) 1.0% B) 5.6% C) 0.8% D) 1.6%

Answer 1

A) 1.0%

Step-by-step explanation:

Given that

Security Yield (%)

Treasury 4.6

AAA corporate 4.8

BBB corporate 5.6

B Corporate 6.2

By considering the above information, the credit spread of the BBB corporate bond would be

= BBB corporate - Treasury

= 5.6% - 4.6%

= 1.0%

We simply deduct the treasury from the BBB corporate so that the credit spread could come