Answer-first summary for fast verification
Answer: Higher spreads result in lower bond prices
The correct answer is B. Higher spreads result in lower bond prices. **Explanation:** - Spreads represent the excess return earned over comparable reference securities (typically Treasuries) - When spreads are added to forward rates in discounting, they decrease the discount factors - Larger spreads mean greater reduction in discount factors, leading to lower present values and thus lower bond prices - Option A is incorrect because positive spreads indicate higher returns, not lower - Option C is incorrect because spreads are applied to forward rate curves, not yield to maturity - Option D is incorrect because spreads directly impact discount factors through the discounting process
Author: LeetQuiz Editorial Team
Ultimate access to all questions.
Which of the following statements about bond spreads is CORRECT?
A. A positive spread indicates the bond earns less than comparable Treasury securities B. Higher spreads result in lower bond prices C. Spreads are applied to the yield to maturity of reference securities D. Spreads have no impact on discount factors
A
A positive spread indicates the bond earns less than comparable Treasury securities
B
Higher spreads result in lower bond prices
C
Spreads are applied to the yield to maturity of reference securities
D
Spreads have no impact on discount factors
No comments yet.