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Basic Question 9 of 13
Given the following interest rate tree, the value of a 2-year, 6% coupon, callable bond (in one year at 100) should be 101.92. However, the market price is actually 101.21. What is the OAS?
B. 50 bp
C. 100 bp
A. -25 bp
B. 50 bp
C. 100 bp
User Contributed Comments 5
| User | Comment |
|---|---|
| kodali | Can be found only by trial and error |
| vi2009 | OAS is the "plug" that makes the bond = the market price ... |
| REITboy | What am I doing wrong here? Upper: $105.755/1.043796=$101.318 Lower: $106/1.043796=$101.552 Avg: $101.435 |
| arudkov | 2 REITboy - got the same result. |
| NIKKIZ | Upper:106/1.0676=99.288
Lower:106/1.0514=100.82 (callable at 100) [{(99.288+100)/2}+6]/1.0438=101.21 I added 50 basis points to the discount rates given. |
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Learning Outcome Statements
explain the calculation and use of option-adjusted spreads;
explain how interest rate volatility affects option-adjusted spreads;
CFA® 2025 Level II Curriculum, Volume 4, Module 28.