A PO Is a "Principal Only" MBS and an IO

question 8

Multiple Choice

A PO is a "principal only" MBS and an IO is an "interest only" MBS. As prepayments increase which of the following happens.

• A) Both the PO and IO become more valuable
• B) The PO becomes more valuable and the IO becomes less valuable
• C) The PO becomes less valuable and the IO becomes more valuable
• D) Both the PO and IO become less valuable

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Definitions:

Significant Influence

A level of power that allows an entity to affect the decision-making of another entity without full control, often associated with ownership of a significant but not majority share percentage.

Significantly Influenced

A situation where an entity has a notable but not controlling interest in another entity, impacting its financial and operating policies.

Associate

An entity in which an investing entity has significant influence, typically through owning a substantial but not majority shareholding, usually between 20% and 50%.

Other Comprehensive Income

Represents items of income and expense that are not realized through the profit and loss account, including gains or losses from foreign currency translation and changes in the fair value of investments.