The Roy State Bank has just purchased a portfolio of asset-backed securities.What type of risk do these securities have that other securities do not have?
A)Credit risk
B)Interest rate risk
C)Business risk
D)Call risk
E)Prepayment risk

Question

Quizplus · Accepted Answer

Asset-backed securities have prepayment risk, which means the underlying assets can be paid off early, reducing the cash flow to the holder of the security. This risk does not arise in other types of securities like credit risk, interest rate risk, business risk, and call risk.

The Roy State Bank Has Just Purchased a Portfolio of Asset-Backed