Define Z-spread and how it differs from other spreads (1x12, option-adjusted spread).

Define Z-spread and how it differs from other spreads (1x12, option-adjusted spread).

• A. Z-spread is the constant yield over the entire risk-free zero curve that discounts a bond's cash flows to price; unlike curve-based spreads that depend on the curve shape or options.
• B. Z-spread is the spread over a simple yield curve.
• C. Z-spread is computed by adding the coupon rate to price.
• D. Z-spread is the difference between yield-to-maturity and coupon.

Answer: (A)