CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

Which of the following statements is true?
A. Z-spread is measured as the difference between the yield of the subject bond and the yield of the corresponding benchmark.
B. Option adjusted spread (OAS) measures the spread inherent in a bond due to its call risk.
C. Given the same issuer and set benchmark, the option adjusted spread (OAS) of a callable bond can never be higher than the corresponding Z-spread.
Explanation: OAS is the spread inherent in a bond that's due to all the risk factors except for call risk. In other words, the spread that's due to call risk has been stripped away when computing OAS. On the other hand, Z-spread does include the spread that's due to call risk. Hence, (OAS) can never be higher than the corresponding Z-spread.

User Contributed Comments 4

User Comment
dblueroom With the same issuer, the credit risk of an Option adjusted bond should be the same of a comparable bond.
jpowers Z-spread = OAS + Option cost
philjoe what if there is a put, option cost is negarive
LoCo83 Why not 'A'?
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