If a mortgage pass-through experiences smaller prepayments than expected early on in the life of the security,the result will be that pass-through holders will receive ________ than expected cash flows early on and ________ than expected cash flows later on.

Question

Quizplus · Accepted Answer

Smaller prepayments would mean that pass-through holders will receive less cash flows than expected early on, as fewer borrowers are paying off their mortgages ahead of schedule. This would result in more cash flows being available later on when prepayments eventually start to pick up. Therefore, the correct choice is C.

If a Mortgage Pass-Through Experiences Smaller Prepayments Than Expected Early