If you pay a premium for an agency mortgage-backed pass-through security, which scenario below would you prefer? a

Finance Dec 05, 2020

If you pay a premium for an agency mortgage-backed pass-through security, which scenario below would you prefer?

a. An acceleration of prepayment speeds

b. A deceleration of prepayment speeds

c. No change in prepayment speeds

d. Not enough information to determine

Expert Solution

Answer- a. An acceleration of prepayment speeds.

Reason- When a premium is paid for an agency mortgage-backed pass through security, interest rates fall and prepayments accelerate. Larger drops result in increase in prepayment rates.

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote