### CFA Practice Question

There are 252 practice questions for this study session.

### CFA Practice Question

Given the following interest rate tree, the value of a 2-year, 6% coupon, callable bond (in one year at 100) should be 101.92. However, the market price is actually 101.21. What is the OAS? A. -25 bp
B. 50 bp
C. 100 bp

Let's add 50 bp to each of the 1 year rates in the tree and re-calculate the value of the bond. If the spread of 50 bp is added to each of the 1-year rates in the tree, the value of this bond will equal its market price of 101.211.

OAS: the spread added to each node that makes the calculated value equal to the market value (Know this!!!)

User Comment
kodali Can be found only by trial and error
vi2009 OAS is the "plug" that makes the bond = the market price ...
REITboy What am I doing wrong here?

Upper: \$105.755/1.043796=\$101.318
Lower: \$106/1.043796=\$101.552
Avg: \$101.435
arudkov 2 REITboy - got the same result.
NIKKIZ Upper:106/1.0676=99.288 Lower:106/1.0514=100.82 (callable at 100)

[{(99.288+100)/2}+6]/1.0438=101.21

I added 50 basis points to the discount rates given.