26-73 Which of the Following Good News and Bad News

question 104

Multiple Choice

26-73 Which of the following good news and bad news effect is NOT true when mortgage interest rates decline,resulting in faster repayments?

• A)Lower market yields reduce the discount rates on any mortgage cash flows and increase the present value of any given stream of cash flows (good news effect).
• B)Low yields lead to faster prepayment of the mortgage pool's principal (good news effect).
• C)With early prepayments comes fewer interest payments in absolute terms (bad news effect).
• D)Faster cash flows due to prepayments can only be reinvested at lower interest rates (bad news effect).
• E)Faster cash flows due to prepayments can be reinvested at higher interest rates (good news effect).

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Definitions:

Osmoreceptor Cells

Specialized cells in the hypothalamus that detect changes in plasma osmolarity and regulate the body's water balance.

Hypothalamus

A region of the brain below the thalamus, responsible for regulating many bodily functions including hunger, thirst, sleep, and emotional activity, through the secretion of hormones.

ADH

Antidiuretic hormone (ADH), also known as vasopressin, regulates water balance in the body by reducing urine production.

Hypersecretion

A condition where glands produce an excessive amount of a substance, often leading to various disorders.