I thought RFR is usually the treasury note, then you add spreads to the RFR. Why did the include the spread of 5-year over 1-year Treasury? Unless they use 1-year Treasury as the RFR?
The RFR is already included at 1.3%. The 5 year call risk spread and the 5 year BBB credit risk spread are the appropriate risk premiums that is used since it matches the duration and structure of the liability (5 Year Callable BBB corp bond).
(1.3)+(.60)+(1.5)+(1.0)(.8)= 5.20% which is greater than $4.90 thus you should not purchase
Well I understand everything else but why do they add the spread of 5 year over 1-year Treasury to the RFR?
5-year BBB-rated credit risk spread (over Treasuries) - 80 basis points is for Default Risk Spread of 5-year Treasury over 1-year Treasury - 100 basis points is for Maturity Risk