SIE practice questionmediumPrepayment risk
Which security is most likely to be affected by prepayment risk?
- ATreasury bills
- BMortgage-backed securities✓ Correct answer
- CUtility stocks
- DInternational bonds
Explanation
Why B — Mortgage-backed securities
Mortgage-backed securities are subject to early principal payments as borrowers refinance or pay off loans. The other securities are not linked to prepayment risk.
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