CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

A borrower will MOST LIKELY exercise the prepayment option when ______

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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