Stripping a security eliminates prepayment risk.

Name: Stripping a security eliminates prepayment risk.
Brand: Quizplus
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Question

Quizplus · Accepted Answer

Stripping a security, such as creating stripped mortgage-backed securities (SMBS), separates the principal and interest payments into different securities, but it does not eliminate prepayment risk. Instead, it redistributes the prepayment risk, typically concentrating it in the principal-only (PO) strips.

Stripping a Security Eliminates Prepayment Risk