As interest rates rise, the value of PO strips _______ and the value of IO strips _______.

Name: As interest rates rise, the value of PO strips _______ and the value of IO strips _______.
Brand: Quizplus
Rating: 4.9 (57 reviews)

Question

Quizplus · Accepted Answer

PO (Principal Only) strips decrease in value as interest rates rise because their cash flows are fixed and discounted at a higher rate. IO (Interest Only) strips increase in value as interest rates rise because prepayments slow down, extending the duration of interest payments.

As Interest Rates Rise, the Value of PO Strips _______