CFA Practice Question

There are 266 practice questions for this study session.

CFA Practice Question

The spread between on-the-run and off-the-run securities is due to ______.

A. maturity
B. coupon rate
C. liquidity
D. duration
Correct Answer: C

User Contributed Comments 10

User Comment
mrushdi pls explain, how if security from same company.
cong It is more difficult to sell off-the-run, I guess.
emporium yeah. on the run is more liquid
Oarona mrushdi:On-the-run securities are less liquid than off-the-run securities. lower liquidity leads to less demand and therefore a low price. This results in high yield.On the other hand, off the run securities are more liquid leading to A HIGHER demand. the higher demand results in higher price resulting in lower yield.
thekid Oarona:
On-the-run is MORE LIQUID than off-the-run securities.
jpducros Agree with thekid
jonan203 man, not to call people out but it seems the same people consistently give misinformation out in the comments or the particular reason as to how they derived that A,B,C or D is the correct answer.
johntan1979 jonan203, if I facepalmed each time that happened, I would have a permanent mark on my forehead.
GBolt93 shouldn't there not be a premium since you could arbitrage two securities with identical time to maturity, coupon rates, and credit risk if one had a premium due to liquidity?
houstcarr one, they don't have identical time to maturity, since the OTR is the most recent issued, so there is a difference. two, arbitrage only works if the spread will reverse. the spread isn't going to reverse if the liquidity premium doesn't reverse
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