The following information relates to Questions 16-29

-The Z-spread of bond A is 1.05% and the Z-spread of bond b is 1.53%. All else equal, which statement best describes the relationship between the two bonds?
A) bond b is safer and will sell at a lower price.
B) bond b is riskier and will sell at a lower price.
C) bond A is riskier and will sell at a higher price.

Question

The following information relates to Questions 16-29
 
-The Z-spread of bond A is 1.05% and the Z-spread of bond b is 1.53%. All else equal, which statement best describes the relationship between the two bonds?
A) bond b is safer and will sell at a lower price. 
B) bond b is riskier and will sell at a lower price. 
C) bond A is riskier and will sell at a higher price.

Quizplus · Accepted Answer

The higher Z-spread on bond b indicates that it is riskier than bond A, hence it will sell at a lower price. Therefore, option B is correct. Option A is incorrect because bond b is riskier and will thus sell at a higher yield, not a lower price. Option C is incorrect because bond A is less risky and will thus sell at a lower yield, not a higher price.

The Following Information Relates to Questions 16-29