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Up8
Correct Answer: C
For callable bonds, Z-spread is greater than OAS and option cost is greater than 0. For putable bonds, Z-spread is less than OAS and option cost is less than 0. Only statement I is correct.
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Up5
Can anyone explain this?
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Up3
For a Putable bond, the yield will be smaller as investors will value it more; so when you take away the put the OAS will have to be larger than the z-spread. For a Callable bond, the yield will be larger as investors will not value it more; so when you take away the Call the z-spread will be larger than the OAS. Hopefully that helps conceptualize the reasoning behind the spread differences.
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Up1
Boo! I got it wrong. :neutral_face:
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Up0
got it…thanks
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