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Assignment on corporate credit yields

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Reference no: EM132828340

Corporate Credit yields

A. Should the yield of a corporate bond be higher or lower than a Treasury which has the same maturity date but a lower coupon? Why?

B. Suppose the yield of the Treasury is 2%, the likelihood of default in the next year of the corporate is 1.5%, and the expected recovery rate conditional on default is 40%. Ignoring liquidity issues, what is your best estimate of the yield of a bond issued by this corporate?

Reference no: EM132828340

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