The Value of an IO Strip Will Most Likely Increase

question 54

Multiple Choice

The value of an IO strip will most likely increase when:

• A) the PSA schedule rate decreases from 200 to 100.
• B) market interest rates remain constant.
• C) prepayments increase.
• D) mortgage refinancings increase.
• E) market interest rates decrease significantly.

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Definitions:

Extraordinary Item

A term used in accounting to describe events and transactions that are both unusual and infrequent in nature, significantly affecting a company's financial position.

Loss On Bond Redemption

The financial loss incurred when bonds are redeemed before their maturity date at a higher value than their purchase price.

Straight-Line Amortization

A technique for distributing the cost of an asset uniformly throughout its period of use.

Callable

A feature of certain bonds or securities that allows the issuer to buy back or "call" the security before its maturity date, often at a predetermined price.