If interest rates increase, 1. the price of a Ginnie Mae falls
2) the price of a Ginnie Mae rises
3) the speed with which Ginnie Maes are
Retired increases
4) the speed with which Ginnie Maes are
Retired declines

Question

Quizplus · Accepted Answer

When interest rates increase, the price of Ginnie Maes falls because investors want a higher rate of return on their investment. As a result, they will be willing to pay less for existing Ginnie Mae bonds, which lowers their market value. With lower prices, the speed with which Ginnie Maes are retired declines because the issuer can repurchase the bonds at a lower cost. Therefore, both 1 and 4 are correct, making option B the correct choice.

If Interest Rates Increase, 1