- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 19. Mortgage-Backed Security (MBS) Instrument and Market Features
- Subject 2. Mortgage Loans and Their Characteristic Features
CFA Practice Question
A borrower will MOST LIKELY exercise the prepayment option when ______
B. the general interest rate is falling.
C. the monthly income of the borrower is going up.
A. the value of the underlying property is going up.
B. the general interest rate is falling.
C. the monthly income of the borrower is going up.
Correct Answer: B
The prepayment option is like an embedded call option. If the prevailing interest rate is falling, the new financing will likely be cheaper.
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