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Answer: 1.06%
## Explanation To calculate the credit spread, we need to: 1. **Calculate the yield to maturity (YTM) of the corporate bond** - Price = 98.2% of par = 0.982 - Coupon rate = 4.56% - Maturity = 10 years - Par value = 100 Using a financial calculator or approximation: - PMT = 4.56 - FV = 100 - PV = -98.2 - N = 10 - Solve for I/Y ≈ 4.56% More precisely, the YTM is approximately **4.56%** (since the bond is priced close to par with coupon rate equal to YTM) 2. **Calculate the credit spread** - Corporate bond YTM = 4.56% - Government bond yield = 3.50% - Credit spread = 4.56% - 3.50% = **1.06%** Therefore, the credit spread is closest to **1.06%** (Option B).
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A 10-year corporate bond with an annual coupon rate of 4.56% is priced at 98.2% of par. The yield on a 10-year government bond is 3.50%. The credit spread of the corporate bond is closest to:
A
0.98%
B
1.06%
C
1.29%
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