I do not understand this statement.
The Z-spread is used for risky bonds that do NOT contain call options
can someone elaborate?
Which of the following statements on spreads is NOT correct?
A) The Z-spread may be used for bonds that contain call options. B) The Z-spread will equal the nominal spread if the term structure of interest rates is flat. C) The option-adjusted spread (OAS) is the difference between the Z-spread and the option cost.
The correct answer was A.
The Z-spread is used for risky bonds that do NOT contain call options in an attempt to improve on the shortcomings of the nominal spread. The other statements are correct.