Finance
When interest rates rise, the value of existing fixed-rate mortgage-backed securities generally:
AIncreases
BDecreases✓ Correct
CRemains the same
DDoubles
Explanation
When interest rates rise, existing fixed-rate securities become less attractive relative to new, higher-yielding options, so their market value decreases.
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Key Terms to Know
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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