A bond portfolio manager is considering three Bonds - A, B, and C - for his portfolio. Bond A allows the issuer to call the bond before the stated maturity, Bond B allows the investor to put the bond back to the issuer before the stated maturity, and Bond C contains no embedded options. The bonds are otherwise identical. The manager tells his assistant: "Bond A and Bond B should have larger nominal yield spreads to a U.S. Treasury than Bond C to compensate for their embedded options." Is the manager most likely correct?

• A.No, Bond A's nominal yield spread should be less than Bond C's.
• B.Yes, his statement is most likely correct.
• C.No, Bond A and Bond B should have smaller nominal yield spreads than Bond C.
• D.No, Bond B's nominal yield spread should be less than Bond C'

Answer rating: 100% (QA)

The detailed answer for the above question is provided below B Yes his ... View the full answer