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What Is the Relationship Between Changes in Interest Rates and Changes

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What is the relationship between changes in interest rates and changes in value of an Interest Only (IO) strip?


Definitions:

Simple Interest

Interest calculated only on the initial amount of money (principal), not on the accumulated interest.

Annually Compounded

Interest on an investment that is calculated once per year, adding the interest earned to the principal amount for future interest calculations.

40-year Period

A time frame lasting 40 years, often referred to in the context of investments or financial planning.

Additional Money

Refers to extra funds added to an individual's or organization's budget or financial resources.

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