If the yield on the 3-month risk free bonds issued by the U.

The TED spread is calculated as the difference between the interest rates on interbank loans and short-term U.S. government debt (T-bills). Specifically, the TED spread = LIBOR - Treasury bill rate. In this case, the 3-month LIBOR rate is 2.5% and the yield on the 3-month U.S. Treasury bill is 0.5%. Thus, the TED spread is 2.5% - 0.5% = 2.0%.