Credit risk spread refers to the difference in prices or interest rates caused by the perceived risk of default on a loan. This can happen when a borrower's creditworthiness is uncertain, leading lenders to charge higher rates to compensate for the increased risk. It can also occur when financial markets are volatile, causing prices to fluctuate. Understanding credit risk spread is crucial in finance as it helps investors and institutions make informed decisions about lending and investing. As a professor of finance, I believe it's important to be aware of this concept to navigate the complex world of finance successfully.
