Reading 56: Valuing Bonds with Embedded Options-LOS g 习题精 interest, div, respect, center

土豆妮

Session 14: Fixed Income: Valuation Concepts
Reading 56: Valuing Bonds with Embedded Options

LOS g: Interpret an option-adjusted spread with respect to a nominal spread and to benchmark interest rates.

 

 

Which part of the nominal spread does the option-adjusted spread (OAS) capture?

A) interest rate and volatility risk.

B) credit and liquidity risk.

C) option risk.

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The OAS removes the amount that is due to option risk from the nominal spread leaving just the credit and liquidity risk.

土豆妮

Which kind of risk remains if the option-adjusted spread is deducted from the nominal spread?

A) credit risk.

B) option risk.

C) liquidity risk.

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The OAS captures the amount of credit risk and liquidity risk.

土豆妮

An analyst has constructed an interest rate tree for an on-the-run Treasury security. Given equal maturity and coupon, which of the following would have the highest option-adjusted spread?

A) A putable corporate bond with a AAA rating.

B) A callable corporate bond with a Baa rating.

C) A putable corporate bond with a Aaa rating.

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The bond with the lowest price will have the highest option-adjusted spread. All other things equal, the callable bond with the lowest rating will have the lowest price.