CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

Which of the following statements is correct?

A. The Z-spread is greater than the nominal spread when the spot rate curve is downward sloping.
B. The Z-spread is the same as the nominal spread when the spot rate curve is flat.
C. The Z-spread is lower than the nominal spread when the spot rate curve is upward sloping.
Correct Answer: B

If the spot rate curve is downward sloping, the nominal spread will be greater than the Z-spread. If the spot rate curve is upward sloping, the nominal spread will be less than the Z-spread. If the spot rate curve is flat, the nominal spread will be equal to the Z-spread.

User Contributed Comments 11

User Comment
synner in other words, spot rate curve is downward sloping, Z spread < nominal spread, and when spot rate curve is upward sloping, Z spread>nominal
danlan2 Remember this: upward, nominal spreadZ-spread.
faya how i remember: z-spread exaggerates the spot rate curve. If spot curves upward, z-spread is higher. If spot curves downwards, z-spread is lower.
jwebbs yea faya's way is the easiest to remember it
Fingon Thanks for putting it in layman's terms, faya.
fanfanli Alternatively, remember the Z-Spread tracks the yield curve and will reflect its movements. Whereas the Nominal assumes one constant rate throughout.
tabulator fanfanli nailed it... BEST metaphor!
antihead who is supposed to remember all that?
johntan1979 Sounds silly but I remember it through the alphabets...

from N down to Z, N comes first, so greater than Z.
MohitSeth1976 Alphabatical order A-z downward moving so N is bigger then z. Z-A upward moving so z is bigger then N.(easy to remember.
ashish100 I have decided

Faya gets first prize

Everyone else gets last
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