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Expected Excess Return (formula)

February 1, 2018

XR ≈ (s * t) – (Δs * SD) – (t * p * L)

s = spread at the beginning of the holding period

t = holding period in fractions of years

Δs = change in credit spread during the period

SD = spread duration of the bond

p = annualized probability of default

L = the expected loss severity

From → Asset Valuation

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