SIE Exam Practice Question 400
Question: 400
One of the primary risks associated with mortgage backed securities is prepayment risk. This tends to present itself when
Correct Answer: B
Explanation:
B: What do many homeowners do when interest rates decline? They refinance their mortgage at the lower interest rate. This means the high-interest mortgages in the portfolio of the mortgage-backed product will vanish. One term used to describe the risk of this occurring is prepayment risk.
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