Spread duration confusion

CFA Level III Fixed Income
#1

John Black, an analyst at XBK, shares Goodwin’s view that spreads should tighten over
the next year. Black has identified three bonds in Exhibit 1 in the industrial corporate
sector as possible investments. Black expects spreads to tighten by 30% for all three
bonds.

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Determine which bond most likely provides the highest expected excess spread
return based on Black’s expectation (Bond 1, Bond 2, Bond 3). Justify your
response.

The solution for bond 2 and 3 is
Bond 2 = 7.44% = 2.25% – (8.00 × (– 0.68%)) – (1.00% × 25%)
Bond 3 = 7.04% = 4.30% – (3.75 × (– 1.29%)) – (3.50% × 60%)

Where is 0.68% coming from? Shouldn’t the change in spread be 0.3%? Not getting this.

#2

By “tighten by 30%” they mean the the new spread will be 0.7 (= 1 − 30%) times the existing spread, so the change will be 0.3 times the existing spread:

225 bps × 0.3 = 67.5 bps ≈ 68 bps.

I hate questions written like this.

They’ll do better on the exam.

(By the way, 0.3% is not 30%.)

#3

Spreads tighten by 30% (percent) → current spread × (1 - 0.30)

Spreads tighten by 30 percentage points → current spread minus 30%

Link: https://thewritingbusiness.com/the-difference-between-percentages-and-percentage-points/#:~:text=A%20percentage%20point%20is%20the,as%20a%20fraction%20of%20100.

#4

You’re correct, of course, but it’s a stupid distinction to make on the exam. (I’d say that it’s a stupid distinction even if they’d clearly explained it in the curriculum; that they haven’t makes it all the stupider.)