› CFA › CFA Level 2 › Derivatives – Schweser mock Exam 1 PM

Derivatives – Schweser mock Exam 1 PM

Add A Reply
Login
  • Author
    Posts
    • Avatar of Alta12Alta12
      Participant
        14 Apr 2017 at 12:39 pm
        Up
        0
        ::

        Statement 1: The proper spread measure for option-free corporate bonds is the nominal spread.
        Statement 2: Callable corporate bonds and MBS should be measured using OAS.
        Statement 3: The Z-spread is appropriate for credit card ABS and auto loan ABS.

        Answer: B Only one statement is correct.

        I thought statement 2 and 3 are correct. But statement 2 is incorrect as it should have included option removed spread.

        I can’t find option removed spread in my notes. Please help. Thanks!

      • Avatar of SarahSarah
        Participant
          14 Apr 2017 at 9:43 pm
          Up
          3
          ::

          hi @Reena and @Alta12
          so yea only statement that is correct is statement 3 for the following reasons.

          It seems you both agree that statement 1 is incorrect so I won’t explain that one.

          Statement 2 Statement 2: Callable corporate bonds and MBS should be measured using OAS. is correct but the actual question says Callable corporate bonds and mortgage-backed securities should be measured using the option-added spread which doesn’t mean anything because that isn’t a methodology.

          Hope that helps @Alta12

        • Avatar of ReenaReena
          Participant
            • CFA Charterholder
            14 Apr 2017 at 2:59 pm
            Up
            2
            ::

            That’s odd @Alta12 – I’m with you that 2 and 3 seems correct. Never heard of option removed spread! Is that the reasoning for the answer Schweser gave?

          • Avatar of Alta12Alta12
            Participant
              14 Apr 2017 at 3:03 pm
              Up
              2
              ::

              @Reena no reasoning provided by Schweser. They referenced it to Study Session 14 LOS 47 i. But I couldn’t find it there.

              I’m glad you think it seems odd too!

            • Avatar of Alta12Alta12
              Participant
                14 Apr 2017 at 11:26 pm
                Up
                1
                ::

                @Diya Got it! Thanks! I should read the question more carefully.

            • Author
              Posts
            Viewing 4 reply threads
            • You must be logged in to reply to this topic.