CFA Practice Question

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CFA Practice Question

Which of the following BEST represents the spread on a putable bond over a risk-free security?
A. Nominal spread
B. Option-adjusted spread
C. Zero-volatility spread
Explanation: The option-adjusted spread takes into account potential interest rate paths and accounts for the effect of the exercise of the option on the bond. It is the best representative of the spread over a comparable maturity straight bond without an embedded option.

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