An investor is faced with an active portfolio decision across three bond rating categories based on the following current market information:Which bond rating category offers the highest expected excess return if spreads instantaneously rise 10% across all ratings categories?

A. A rated bond category

B. BBB rated bond category

C. BB rated bond category

Transcribed Image Text:

Rating Category A BBB BB Current OAS 1.00% 1.75% 2.75% Expected Loss (POD X LGD) 0.10% 0.75% 2.50% EffSpreadDur 7 6 5