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 bonds, including Ginnie Maes, falls because their fixed interest payments become less attractive compared to new bonds issued at the higher rates. Additionally, the speed with which Ginnie Maes are retired declines because fewer homeowners refinance their mortgages in a high-interest rate environment, slowing down the rate of prepayments to Ginnie Mae securities holders.

If Interest Rates Increase