CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

Which of the following statements is true with respect to bonds with embedded options?
A. A bond with an embedded put option will trade at a higher yield to maturity than a comparable bond without the embedded put.
B. The option-adjusted-spread on a callable bond will always be higher than its nominal spread.
C. The option-adjusted-spread is the average spread the investor would actually earn over a comparable Treasury.
Explanation: B is incorrect because a bond with an embedded put option will trade at a lower yield to maturity since the bond would have a higher price.

C is incorrect because the option-adjusted-spread on a callable bond will always be lower than its nominal spread. Therefore, the option-adjusted-spread is the average spread the investor would actually earn over a comparable Treasury.

User Contributed Comments 2

User Comment
tim2 D is incorrect also. I think - the OAS is the spread the average investor would earn if there were no option.
yxten1 Treasury has no option, hence OAS is the avg spread investor will earn
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