Answers - General

General - Q1

What has happened to the price of this bond ?
Today a 10 year bond has a 5% coupon but 2 years later an identical 10 year bond has a 8% coupon.
The price of the original bond must have fallen.

General - Q2

Which bond has more credit exposure ?
An investor holds 2 identical bonds but with different coupons
Bond A has a coupon of 10%
Bond B has a coupon of 5%
The credit exposure of Bond A is greater than Bond B
Bond B has a higher coupon so should have a higher price

Credit Risk - Q1

Is this statement true ?
The Z-spread of a bond will be identical to the simple maturity spread in a flat yield curve
Yes

Provisions - Q1

Is this statement true ?
The return on callable bonds can be calculated using OAS (Option Adjusted Spread)
Yes