An increase in either the risk-free rate or the risk premium on a fixed-rate mortgage results in a higher required rate of return when investing in the mortgage and therefore causes mortgage prices to decrease.

Question

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When the required rate of return on a fixed-rate mortgage increases, investors will demand a higher return on their investment. This means they will be willing to pay less for a mortgage, causing prices to decrease. The risk-free rate and the risk premium are both factors that can affect the required rate of return on a mortgage.

An Increase in Either the Risk-Free Rate or the Risk