An analyst is reviewing a bond for investment purposes. The bond is expected to have a default probability of 2%, with an expected loss of 0.8% of the exposure amount. If the current risk-free rate is 4%, what is the minimum spread needed on the bond for its expected return to match the risk-free rate?

1. 84 bps
2. 120 bps
3. 200 bps
4. 280 bps

Answer rating: 100% (QA)

120 bps Explanation The minimum spread that the bond needs to offer in order to matc... View the full answer