- CFA Exams
- CFA Exam: Level II 2021
- Study Session 13. Fixed Income (2)
- Reading 34. Valuation and Analysis of Bonds with Embedded Options
- Subject 4. Option-Adjusted Spread

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**CFA Practice Question**

The zero-volatility spread is a better measure than the nominal yield because:

B. the nominal yield is only a one-point estimate whereas the Z-spread considers the whole yield curve.

C. the Z-spreads adjust for inflation while nominal spreads do not.

A. the nominal yield is not an effective yield measure.

B. the nominal yield is only a one-point estimate whereas the Z-spread considers the whole yield curve.

C. the Z-spreads adjust for inflation while nominal spreads do not.

Correct Answer: B

The zero-volatility spread is a better measure than the nominal yield because the nominal yield is only a one-point estimate whereas the Z-spread considers the whole yield curve.

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