Question
How should you think about effective duration instead of modified duration when a bond has embedded options?
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Answer
Use effective duration because it accounts for option-driven cash flow changes.
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Question
What does negative convexity in callable bonds at low yield levels imply about spread interpretation?
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Answer
Embedded option effects matter more, so non-option spreads can mislead.
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Question
Why is option-adjusted spread more appropriate than a non-option spread for callable bonds?
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Answer
It removes the value of the embedded option from the spread.
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Question
Why is the ability to distinguish G-spread, I-spread, Z-spread, and OAS exam-relevant in fixed income?
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Answer
They measure different relative values and risks against different benchmarks.
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