CFA Practice Question

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CFA Practice Question

Bond A, B and C all share similar characteristics and credit quality. Their option-adjusted spreads are 10bps, 12 bps and 15 bps, respectively. Other things being equal, which bond is the most attractive one?
A. Bond A
B. Bond B
C. Bond C
Explanation: Bond C has the largest OAS which means it is the cheapest one.

User Contributed Comments 2

User Comment
daverco I guess this is assuming the option cost remains constant? Because holding the z-spread constant a lower OAS implies a greater option cost, which in the case of a call option would lower the bond price. No?
mtsimone @Daverco: But a wider spread implies a lower cost, and you always want to buy the low price.
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