A falling rate of market interest would have which of the following impacts on a mortgage pass-through security?

Question

Quizplus · Accepted Answer

A falling rate of market interest would incentivize borrowers to refinance their mortgages at a lower rate, leading to increased prepayments on loans in the pool. This would result in a decrease in the expected remaining cash flows and could potentially decrease the market value of the mortgage pass-through security (MPT). Therefore, both A and C are not correct as the falling rate of market interest would not decrease the market value of the MPT, but only have a potential negative impact on it.

A Falling Rate of Market Interest Would Have Which of the Following