Compared to Mortgage Pass-Though Securities (MPTs),MBBs Should Be Priced

question 23

Multiple Choice

Compared to mortgage pass-though securities (MPTs) ,MBBs should be priced:

• A) toprovide lower yields than MPTs,because of lower prepayment risk.
• B) toprovide higher yields than MPTs,because of higher prepayment risks.
• C) toprovide the same yield as MPTs,because of equivalent amounts of prepayment risk.
• D) none of the above.

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Definitions:

WACC

WACC, or Weighted Average Cost of Capital, represents a firm's blended cost of capital across all sources, including debt and equity, weighted by their respective proportions.

NPV

Net Present Value, a calculation used to determine the value of a project or investment by discounting its future cash flows to the present.

Cash Flow

The total amount of money being transferred into and out of a business, especially considered important for maintaining liquidity.

Cost Of Capital

The total cost of funds used for financing a business, including debt and equity.