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

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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.

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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.

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

A) the same.

B) higher.

C) lower.

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

gaoflex

thank you.