a Discuss the statement that it is easy to estimate the credit spread of a corporate bond because it could be done by simply comparing the bond 's YTM with that of a Treasury bond that has identical cash flows b There is a 0 5 percent probability of default by the year end on a one year bond issued at par by a particular corporation If the corporation defaults, the investor will get nothing Assume that a default free bond exists with identical cash flows and liquidity, and the one year yield on this bond is 4 percent What yield should be required by risk neutral investors on the corporate bond What should the credit spread be

Question: a. Discuss the statement that it is easy to estimate the credit spread of a corporate bond because it could be done by simply comparing

a. Discuss the statement that it is easy to estimate the credit spread of a corporate bond because it could be done by simply comparing the bond's YTM with that of a Treasury bond that has identical cash flows.
b. There is a 0.5 percent probability of default by the year-end on a one-year bond issued at par by a particular If the defaults, the investor will get nothing. Assume that a default-free bond exists with identical cash flows and liquidity, and the one-year yield on this bond is 4 percent. What yield should be required by risk-neutral investors on the corporate bond? What should the credit spread be?

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