OAS on a callable bond is 75 basis points using on-the-run treasuries as benchmark rates. Which is correct?OA. Cost of the embedded option is 75 bpsB. Cost of the embedded option is 75bps over the treasuries benchmarkOC. OAS reflects the credit risk and liquidity risk of the bond over the treasury benchmark ratesOD. Nominal spread is 75 bps over the treasury benchmark rates.

Step1 An option-adjusted spread (OAS) is a calculation that calculates the difference between a…

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OAS on a callable bond is 75 basis points using on-the-run tre

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

OAS on a callable bond is 75 basis points using on-the-run treasuries as benchmark rates. Which is correct?
OA. Cost of the embedded option is 75 bps
B. Cost of the embedded option is 75bps over the treasuries benchmark
OC. OAS reflects the credit risk and liquidity risk of the bond over the treasury benchmark rates
OD. Nominal spread is 75 bps over the treasury benchmark rates.

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