an investor purchases a bond that is putable at the option of the holder. The option has value. He has calculated the Z spread as 223 basis points. The option-adjusted spread will be: a.) equal to 233 basis points b.) less than 233 basis points c.) greater than 233 basis points d.) It is not possible to determine from the given date
less than 233 basis points b)
Z-Spread = OAS + option cost OAS = Z-spread - option cost Putable option has a negative option cost, so the OAS is higher.
yeah for puts it might C. lol
It’s C, nice sharp
C gotta include the premia in the total Z Z = O + C “Zoc” say it 10 times
Nice question.