Reading 64: Understanding Yield Spreads-LOS g 习题精选 2011, face, equivalent, affect, border

1215

Session 15: Fixed Income: Basic Concepts
Reading 64: Understanding Yield Spreads

LOS g: Identify how embedded options affect yield spreads.

 

 

As compared to an equivalent noncallable bond, a callable bond’s yield should be:

A) the same.

B) lower.

C) higher.

---

 

A callable bond favors the issuer. Hence, the value of the bond is discounted by the value of the option, which means the yield will be higher.

gaoflex

thank you.

1215

As compared to an equivalent nonputable bond, a putable bond’s yield should be:

A) the same.

B) higher.

C) lower.

---

A putable bond favors the buyer (investor). Hence, a premium will be paid for the option, which means the yield will be lower.