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A corporate bond was trading with 2%probability of default and 60% loss given default.

A corporate bond was trading with 2%probability of default and 60% loss given default. Due to the credit crisis the probability of default increased to 10% and the loss given default increased to 100%. Assuming that the risk premium remained the same how did the credit spread change?

A.

Increased by 1120 basis points

B.

Increased by 880 basis points

C.

Increased by 1000 basis points

D.

Decreased by 880 basis points

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