### Step 1: **Introduction to the Concept** The benchmark spread, often called the **credit spread**, is the difference in yield between a corporate bond and a comparable maturity U.S. Treasury bond (the benchmark). This spread reflects the additional risk investors take by investing in corporate bonds versus risk-free Treasuries. The spread is usually measured in basis points (bps), where 1 basis point = 0.01%. --- ### Step 2: **Identify the Appropriate Treasury Benchmark for Each Issue** To determine the correct Treasury benchmark, match the maturity date of each corporate issue to the closest Treasury bond maturity provided: 1. **TWC 6.55 05/01/2037**: Closest Treasury is US/T 4.75 02/15/2037 (Yield: 4.518%) 2. **MKC 5.75 12/15/2017**: Closest Treasury is US/T 4.25 11/15/2017 (Yield: 4.096%) 3. **GS 5.45 11/01/2012**: Closest Treasury is US/T 3.375 11/30/2012 (Yield: 3.507%) --- ### Step 3: **Calculate the Benchmark Spread for Each Issue** **Formula:** **Benchmark Spread (bps) = (Corporate Yield - Treasury Yield) × 100** #### Calculation: 1. **TWC 6.55 05/01/2037:** - Corporate Yield: 6.373% - Treasury Yield: 4.518% - Spread = (6.373 - 4.518) × 100 = 1.855 × 100 = **185.5 bps** 2. **MKC 5.75 12/15/2017:** - Corporate Yield: 5.685% - Treasury Yield: 4.096% - Spread = (5.685 - 4.096) × 100 = 1.589 × 100 = **158.9 bps** 3. **GS 5.45 11/01/2012:** - Corporate Yield: 4.773% - Treasury Yield: 3.507% - Spread = (4.773 - 3.507) × 100 = 1.266 × 100 = **126.6 bps** --- ### Step 4: **Complete the Table** | Issue | Yield (%) | Treasury Benchmark | Benchmark Spread (bps) | |-------------------------|-----------|-------------------|-----------------------| | TWC 6.55 05/01/2037 | 6.373 | 4.518 | 185.5 | | MKC 5.75 12/15/2017 | 5.685 | 4.096 | 158.9 | | GS 5.45 11/01/2012 | 4.773 | 3.507 | 126.6 | --- ### Step 5: **Summary of the Solution in a Few Sentences** We matched each corporate bond to the closest maturity Treasury benchmark, subtracted the Treasury yield from the corporate yield, and multiplied by 100 to get the spread in basis points. The TWC bond has a spread of 185.5 bps, MKC has 158.9 bps, and GS has 126.6 bps over their respective Treasury benchmarks. --- #### **Explanation of Each Step** - **Step 1:** Introduced the concept of benchmark (credit) spreads. - **Step 2:** Identified the correct Treasury benchmarks based on maturity. - **Step 3:** Calculated the spreads using the provided yields. - **Step 4:** Filled in the required table. - **Step 5:** Summarized the process and findings.