CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

You have applied your favorite valuation model to a bond with an embedded option and found an option-adjusted spread (OAS) of 40 basis points, while the Z-spread has been calculated at 207 basis points. What is the option cost?

A. 167 basis points
B. 185 basis points
C. 207 basis points
Correct Answer: A

207 - 40 = 167

User Contributed Comments 4

User Comment
olagbami option cost: z spread-OAS
bodduna Z spread = OAS + Option Cost
CJPerugini If OAS < Zspread, then Call Option
If OAS > Zspread, then Put Option
tomalot My favorite bond valuation model...how can I choose just one!?
You need to log in first to add your comment.