SIE practice questioneasyPrepayment risk
Owners of mortgage-backed securities are particularly exposed to which risk if homeowners refinance in a falling interest rate environment?
- ABusiness risk
- BCredit risk
- CPrepayment risk✓ Correct answer
- DCurrency risk
Explanation
Why C — Prepayment risk
Prepayment risk occurs when borrowers repay loans early, leading to reinvestment at lower rates. The other options do not specifically relate to early repayment.
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