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CFA Level I · CFA Level I Exam · The Term Structure of Interest Rates: Spot, Par, and Forward Curves

A corporate bond has a yield to maturity of 5.60% and a comparable-maturity government bond yields 4.10%. The G-spread on the corporate bond is closest to:

The G-spread is 1.50%. It equals the corporate bond's yield to maturity minus the yield on a government bond of comparable maturity, so 5.60% minus 4.10% gives 1.50%, which compensates investors for credit and liquidity risk.

  1. A1.50%Correct
  2. B4.10%
  3. C5.60%

Explanation

The G-spread is the corporate yield minus the government yield of similar maturity: 5.60% − 4.10% = 1.50%. The other options simply repeat one of the yields.

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