Hi guys, I wonder to which extend the answers of some questions are reliable. In fact for this question which is : Z-spread = 120 bps OAS = 70 What is option cost? My answer is : 50 bp (easy as 120 - 70) But the answer states 70… This is not the first time I face this problem. I find this very pity for a certification requeting excellence…
Is the Z spread additional information,if the OAS is 70…isn’t that the cost of the option over the underlying instrument?
Z spread = OAS + option cost therefore option cost = Z spread - OAS So yeah I would go with 50 bp
check the CFAI erratta stuff…its probably in there. But yes, 50bps is right