26-50 A principal only (PO)mortgage-backed strip is attractive to investors who wish to speculate about decreasing interest rates.

Question

Quizplus · Accepted Answer

A PO strip is made up of only the principal payments from underlying mortgages, so its value increases as interest rates decrease and borrowers pay down their mortgages faster. Therefore, investors who believe interest rates will decrease may be interested in investing in PO strips as a speculative strategy.

26-50 a Principal Only (PO)mortgage-Backed Strip Is Attractive to Investors