Fluctuations in the timing of cash-flows arising out of an underlying pool of securitized assets is referred to as:
A)income risk.
B)prepayment risk.
C)liquidity risk.
D)capital risk.
E)None of the options is correct.

Question

Quizplus · Accepted Answer

Fluctuations in the timing of cash-flows from securitized assets due to early repayment or principal prepayment is referred to as prepayment risk. This risk arises when the borrower chooses to pay back the loan principal earlier than the specified maturity date, reducing the overall interest earned by investors.

Fluctuations in the Timing of Cash-Flows Arising Out of an Underlying