SIE practice questionmediumMortgage-backed securities
All of the following are risks associated with mortgage-backed securities EXCEPT:
- ACredit risk
- BPrepayment risk
- CReinvestment risk
- DUnlimited upside potential✓ Correct answer
Explanation
Why D — Unlimited upside potential
MBS face credit, prepayment, and reinvestment risks, but do not have unlimited upside potential since returns are capped by mortgage payments.
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