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Prepayments cause the timing and amount of cash flows from mortgage loans and mortgage-backed securities (MBS) to be uncertain. Thus: A. the rate of prepayments is important to valuing the passthrough securities but is impossible to estimate. B. industry conventions need to be adopted as benchmarks for prepayment risk but have not been at this point. C. the analyst must make specific assumptions about the rate at which prepayments of the pooled mortgages occurs when valuing the passthrough securities. D. regulators mandate the convention firms must use when estimating prepayment rates. |