Question

is there anything wrong with the following scenario? explain why or why not. Bond issue XYZ...

is there anything wrong with the following scenario? explain why or why not.

Bond issue XYZ rated BB: 300 basis points

Bond issue ABC rated C: 280 basis points

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Answer #1

Yes the scenario is wrong.

A lower rated bond, (C is lower rated than BB) should have higher credit spread. But here we see lower rated bond Bond C has lower credit spread.

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