Chapter 3 Impact of Financing on Investment Decisions and ...

8.1.4 Assuming that a government bond such as the one issued by the US or an EU government is free of credit risk, the yield on a corporate bond will be: Yield on corporate bond = risk free rate + credit spread. 8.1.5 Since . credit spreads . reflect. the credit risk. of a bond, they will be . inversely related to the credit quality. of the bond. ................
................