Spreads

CFA Level I
#1

Bond Emberdded option Amt Outstanding A call 20m B call $80m C put 20 D put 80 the bond with the largest spread is compared to a comparable treasury security is: A B C D

#2

has to be a call option. A ??

#3

yeap, A.

#4

i could not tell why A and not B. please explain.

#5

less liquidity = higher spread…A

#6

I think b/c it is less liquid.

#7

80MM is a large issue, and low bid-ask spread and high liquidity compared to 20MM issue.

#8

and call because the callable bond’s price is lower than a put, thus higher yield?

#9

why is 80M more liquid than 20M?

#10

the larger the issue the more potential that it will be traded more frequently.

#11

hmm makes sense, thanks

#12

Thank you all