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FRM Part I · FRM Exam Part I · Corporate Bonds

A corporate bond yields 6.40% annually. A government bond of the same maturity and currency yields 4.15%. What is the bond's yield spread over the government benchmark, in basis points?

The spread is 225 basis points. It is found by subtracting the government yield of 4.15% from the corporate yield of 6.40%, giving 2.25%, and converting percentage points to basis points by multiplying by 100.

  1. A225 bpsCorrect
  2. B265 bps
  3. C215 bps
  4. D1,055 bps

Explanation

The yield spread is the corporate yield minus the benchmark yield: 6.40% - 4.15% = 2.25%, which is 225 bps. The 1,055 bps figure wrongly adds the two yields. The 215 and 265 bps options are arithmetic slips.

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