SIE practice questionhardPrepayment risk
What factor most increases prepayment risk in mortgage-backed securities?
- ARising interest rates
- BFalling interest rates✓ Correct answer
- CStable property values
- DInflation increases
Explanation
Why B — Falling interest rates
Falling rates encourage homeowners to refinance, boosting prepayments and risk. Rising rates reduce the incentive to prepay.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 1,867+ SIE questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Spot an error in this question or explanation? Tell us — we fix these fast.
Related Risk & Portfolio Management questions
- A hedge fund invests solely in cryptocurrencies. It is exposed mostly to:
- A long-term callable bond is likely to be called early when:
- A firm’s profits drop after a major product launch fails. Which risk does this situation exemplify?
- An American buys a euro-denominated bond. If the euro depreciates against the dollar, the investor experiences:
- A company with high fixed debt payments is especially vulnerable to:
- A real estate investment trust (REIT) holds properties in a market with few buyers. In a downturn, investors may be…
- If an investor owns a broadly diversified portfolio of U.S. stocks and the entire stock market declines sharply, which…
- An investor in callable bonds is concerned about not being able to reinvest principal at similar rates if bonds are…