Question #56
Reading: Reading 27 Valuation and Analysis of Bonds With Embedded Options
PDF File: Reading 27 Valuation and Analysis of Bonds With Embedded Options.pdf
Page: 17
Status: Unattempted
Part of Context Group: Q56-57
First in Group
Shared Context
Question
Which of the following is most accurate regarding the use of a binomial tree to calculate the option adjusted spread (OAS) of bonds with embedded options?
Answer Choices:
A. The binomial tree can be used to calculate the OAS of a callable corporate bond but not a mortgage backed security (MBS), as the MBS does not contain an option
B. The spot rate curve cannot be used to calculate the OAS of a callable corporate bond but can be used for a mortgage backed security (MBS)
C. The binomial tree can be used to calculate the OAS of a callable corporate bond but not a mortgage backed security (MBS), as the MBS value is path dependent
No explanation available for this question.