Question
In: Finance
Which of the following statements is false with respect to the characteristics associated with mortgage pass-through...
Which of the following statements is false with respect to the characteristics associated with mortgage pass-through securities?
A. The prepayment privileges that mortgagors possess is effectively the equivalent of issuing straight debt and then purchasing a bond call option.
B. The passthrough coupon rate that MBS investors will receive will always be slightly less than the mortgage rate applicable to the pool.
C. The timing of the cash flow stream from a mortgage passthrough security is just as uncertain as that of a callable bond.
Solutions
Expert Solution
Statement (A) and statement (B) are true as the prepayment privileges that the mortgages pauses is effectively equivalent to issuance of straight debt than purchase any Bond call option.
The rate of mortgage backed securities investors will be lower than the mortgage rate applicable to the pool as well.
Other statements are false.
Correct answer will be option( A) & Option (B)
jeff jeffy answered 2 years agoRelated Solutions
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