Question #10
Reading: Reading 28 Credit Analysis Models
PDF File: Reading 28 Credit Analysis Models.pdf
Page: 4
Status: Correct
Correct Answer: A
Question
If investors are expecting an impending recession, credit spreads would most likely:
Answer Choices:
A. widen
B. remain unchanged
C. narrow
Explanation
Credit spreads change based on market's expectations. Impending recessions would lead
to upward revision in probability of default and lower recovery rate. Combined, these
revisions would lead to widening of credit spreads.