Which of the following is an example of a measure of credit quality?

A measure of credit quality assesses the likelihood that a borrower will default on their debt obligations. In this context, the Average Option-Adjusted Spread (OAS) serves as an effective measure of credit quality. OAS adjusts the spread of a bond's yield over a benchmark yield curve to account for the embedded options and is utilized primarily to gauge the risk premium demanded by investors for taking on additional credit risk relative to a risk-free benchmark, often represented by government bonds.

By analyzing OAS, investors can identify how much additional yield they are receiving for the risk of possible default. A higher OAS typically indicates higher perceived credit risk, whereas a lower OAS suggests lower perceived credit risk. Therefore, using Average OAS helps investors evaluate the credit quality of different fixed-income securities, enabling more informed investment decisions regarding credit risk.

The other options focus on different aspects of investment performance and risk. For example, average equity market return provides insight into stock market performance and returns but does not evaluate credit risk. Average portfolio deviation and standard deviation of asset classes are measures of volatility and risk associated with investments, not specifically tailored to assess credit quality. Thus, the Average OAS is distinctly suited for assessing credit quality in the context of fixed-income securities.