There are four main risks associated with investing in mortgages: credit risk, liquidity risk, price risk, and prepayment risk.

Question

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Credit risk refers to the possibility of borrowers defaulting on their mortgage payments, liquidity risk refers to the risk of not being able to sell the mortgage quickly or at a fair price, price risk refers to the possibility of changes in interest rates affecting the value of the mortgage, and prepayment risk refers to the risk that borrowers may pay off their mortgages early, resulting in a loss of interest income for the investor.

There Are Four Main Risks Associated with Investing in Mortgages