SIE practice questionmediumMortgage-Backed Securities
Prepayment risk is most closely associated with which type of debt security?
- AConvertible corporate bonds
- BTreasury STRIPS
- CMortgage-backed securities✓ Correct answer
- DMunicipal general obligation bonds
Explanation
Why C — Mortgage-backed securities
Mortgage-backed securities may repay principal early if borrowers pay off mortgages early. STRIPS and GOs have no prepayment risk; convertibles carry company/stock risk.
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