Question

Given the yield curve of US treasury zero-coupon bonds, which spread is most helpful in pricing a corporate bond?

1) Bid-ask spread
2) Credit spread
3) Liquidity spread
4) Yield spread

Answer 1

The credit spread is the most helpful spread for pricing a corporate bond, as it compensates for the higher risk associated with corporate bonds.

Step-by-step explanation:

When pricing a corporate bond, the spread that is most helpful is the credit spread.

The credit spread represents the additional yield that investors demand to compensate for the higher risk associated with corporate bonds compared to risk-free Treasury bonds.

By comparing the yield on a corporate bond to the yield on a Treasury bond of the same maturity, investors can determine the credit spread and assess the riskiness of the corporate bond.