Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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What are the Effects of Prepayment Illustrated?
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Step 1 o
Prepayments are mainly related with mortgage backed securities & corporate bonds. MBS or mortgage back securities have bundle of home loans which are purchased by the investors. Interest payments of the MBS are collected by the owners. When earlier payments are made by the homeowners they face a risk of reduced interest payments from the home loans.
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