Spread narrowing

CFA Level III Fixed Income
#1

In on the finquiz question, the following has been shows:

  1. Arrive at the spread difference between the current spread (issue spread - treasury spread)

  2. LT mean spread - number in pt 1 above

  3. Divide the number pt 2 above by standard deviation

Q. Can anyone please explain as to why the value in pt 2 has to be divided by standard deviation. In many other problem I have just seen answers being given upt to 2.

Q. How do i interpreted the value in pt 3 above with regard to standard deviation.

thank you

#2

it is the number of standard deviations away from the mean

#3

So, the bigger the number larger the gain.

#4

kindly confirm