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If the issuer does not default, which is, measured by historical standards, extremely unlikely for an A-rated company, an investor earns an incremental coupon income of 100 bp over a 1-year horizon. Conditional on the fact that the bond receives a downgrade to Baa during the course of the year, a price depreciation of 50 bp times the duration of the bond at the end of the year, that is approximately 3.5, would have to be expected. Since Baa-rated US corporate bonds on average traded at 150 bp over treasuries, 50 bp represents the spread widening that has to be expected as a consequence of the downgrade. Consequently the investor expects a negative excess return of 100 – 3.5x 50= -75 bp, if the rating is downgraded from A to Baa. Table 9.4 details the same computation for the other potential rating changes.