medium · Principles of Finance valuation
A 10-year callable bond trades with an Option-Adjusted Spread (OAS) of 150 bps.
If the Z-spread is 180 bps, what is the 'option cost' and what does it represent?
- -30 bps; the discount investors receive for the call's volatility
- 330 bps; the total spread including the value of the call
- 30 bps; the premium paid by the issuer to the investor for the call right
- 30 bps; the yield investors give up for the issuer's right to call
Sign up free to see the explanation and track your rank →
More Principles of Finance valuation practice
- What is its current market price?
- What is its Modified Duration?
- If the market yield to maturity (YTM) suddenly increases to 5.5%, what will happen to the
- A 10-year corporate bond with a face value of $1,000 pays an annual coupon of 6%. If the c
- What is the current market price of the bond?
- A 5-year zero-coupon bond with a face value of 1,000 is curr… — What is the yield to matur
- If the bond is currently trading at $920, what is its current yield?
- An investor buys a 1,000 par bond for 1,050. The bond pays a semi-annual coupon of 30. If