Page 65 - FINAL CFA SLIDES DECEMBER 2018 DAY 14

LOS 52.i: Compare, calculate, and Session Unit 14:

interpret yield spread measures., p.58
52. Introduction To Fixed Income Valuation

Zero-Volatility and Option-Adjusted Spreads

Example: Zero-volatility spread: 1-, 2-, and 3-year spot rates on Treasuries are 4%, 8.167%, and 12.377%,
respectively. Consider a 3-year, 9% annual coupon corporate bond trading at 89.464. The YTM is 13.50%,
and the YTM of a 3-year Treasury is 12%. Compute the G-spread and the Z-spread of the corporate bond.

tanties

For Z-spread, set PV of Bond = Market Price Today!

OAS = Z-spread – option value!