a callable bond issued by company A

CFA Level I
#1

Consider a callable bond issued by company A and a putable bond issued by compnay B. OAS for both bonds are 125bps. Which of the following can be true (from the issuer’s perspective)? A. z-spread is based on the differences in YTMs B. cost of the put option in the putable bond is -10 bps C. spread over the spot rates for a Treasury security similar to the callable bond is 110bps D. given a nomnial spread for the callable bond of 130bps, the option cost is 5 bps

#2

B

#3

you’re smart, can you explain why? Thanks

#4

D is wrong, because it says nominal spread, where as it should be saying zspread. C doesn’t add up to the information given in teh question A is unclear, because z spread is a spread measure that maintains the term structure of interest rates B is correct, because put option have negative cost to the issuer.

#5

you’re very good, you’ll pass Level I with no doubt.

#6

Portfolio Wrote: ------------------------------------------------------- > you’re very good, you’ll pass Level I with no > doubt. you have no idea how behind i am… i need more FSA. I am literally getting R*PED in FSA and the questions that ask you to compute ratios. particularly ROE.