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!
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
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