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).