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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

Would the yield spread on a corporate bond over a Treasury bond with the same maturity tend to become wider or narrower if the economy appeared to be heading toward a recession? Would the change in the spread for a given company be affected by the firm’s credit strength? Explain.

Summary Introduction

To identify: Whether the yield spread on corporate bond over a Treasury bond tend to be wider or narrower and change in spread be affected by the credit strength of the firm.

Introduction:

Yield Spread: It is the difference in the rate of return of two different investments with same maturity period but different credit conditions.

Explanation
  • Yield spread on corporate bond over a Treasury bond is wider as it is the difference in the rate of return of two and return on corporate bond is more than the Treasury bond...

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