The following information relates to Questions 16-29

-Given the yield curve for uS Treasury zero-coupon bonds, which spread is most helpful pricing a corporate bond? The:
A) Z-Spread.
B) TEd spread.
C) libor-oIS spread.

Question

The following information relates to Questions 16-29
 
-Given the yield curve for uS Treasury zero-coupon bonds, which spread is most helpful pricing a corporate bond? The:
A) Z-Spread. 
B) TEd spread. 
C) libor-oIS spread.

Quizplus · Accepted Answer

The Z-spread is the most helpful in pricing a corporate bond as it measures the spread required to match the cash flows of the bond to the yield curve, including a credit risk premium. This spread reflects the difference between the yield on a specific bond and the yield on the Treasury bond with the same maturity. The TED spread measures the difference between the three-month Treasury bill and the three-month LIBOR, and is used to gauge credit risk in the banking system. The Libor-OIS spread is the difference between LIBOR and the overnight indexed swap rate, and is used to measure credit risk and liquidity in the interbank lending market. While both the TED spread and Libor-OIS spread may provide insight into broader market conditions and credit risk, they are not as directly relevant to pricing a specific corporate bond as the Z-spread is.

The Following Information Relates to Questions 16-29