Interest-only strips lose the some or all of the end of their stream of cash flows if prepayment occurs.

Name: Interest-only strips lose the some or all of the end of their stream of cash flows if prepayment occurs.
Brand: Quizplus
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Question

Quizplus · Accepted Answer

Interest-only strips rely on a continuous stream of interest payments from the underlying asset, usually a mortgage. If prepayments occur, the cash flows may be reduced or end early, therefore causing losses to the investor in the interest-only strip.

Interest-Only Strips Lose the Some or All of the End