As the housing bubble began to burst in 2006-2008,investors would only buy mortgage-backed securities at high yields to compensate for higher perceived default risk.As a result
A) banks suffered significant capital losses as the value of their holdings of mortgage-backed securities declined.
B) funds available for mortgages increased.
C) bank profits rose as they earned higher interest on mortgages.
D) the price of mortgage-backed securities tended to rise due to the higher yields.

Question

Quizplus · Accepted Answer

As investors demanded higher yields due to the increased perceived default risk, the value of mortgage-backed securities declined. This resulted in significant capital losses for banks who held these securities.

As the Housing Bubble Began to Burst in 2006-2008,investors Would