Mark an analyst, analyzes two corporate bonds callable at par and having the same characteristics in terms of maturity, coupon rates, as well as call dates. Bond Bond #1 Bond #2 Price (per 100 of par value) 102.6 105.2 He estimates the option-adjusted spread (OAS) of the two bonds assuming an interest rate volatility of 20%. 1) Which bond is likely to exhibit a higher OAS? Answer: Bond 1 Bond 2 2) If the volatility of interest rates is 25% instead of 20%, the OAS of Bond #1 is likely to Answer: increase decrease

Mark an analyst, analyzes two corporate bonds callable at par and having the same characteristics in terms of maturity, coupon rates, as well as call dates. Bond Bond #1 Bond #2 Price (per 100 of par value) 102.6 105.2 He estimates the option-adjusted spread (OAS) of the two bonds assuming an interest rate volatility of 20%. 1) Which bond is likely to exhibit a higher OAS? Answer: Bond 1 Bond 2 2) If the volatility of interest rates is 25% instead of 20%, the OAS of Bond #1 is likely to Answer: increase decrease

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter12: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 8FPE: Describe and differentiate between a bonds (a) current yield and (b) yield to maturity. Why are...

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Question

Mark an analyst, analyzes two corporate bonds callable at par and having the same characteristics in terms of
maturity, coupon rates, as well as call dates.
Bond
Bond #1
Bond #2
Price (per 100 of par value)
102.6
105.2
He estimates the option-adjusted spread (OAS) of the two bonds assuming an interest rate volatility of 20%.
1) Which bond is likely to exhibit a higher OAS?
Answer:
Bond 1
Bond 2
2) If the volatility of interest rates is 25% instead of 20%, the OAS of Bond #1 is likely to
Answer:
increase
decrease

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