An investor purchases $1 million of a mortgagebacked security. The periodic interest amount received on a mortgagebacked security:
A) Increases over time
B) Decreases over time
C) Remains constant
D) Cant remember
I was under the impression that the actual payment received from the MBS would be fixed, even though the makeup of that payment changes in terms of % made up of principal and % made up of interest. The answer is B. Is that just because of prepayment?作者: cross-ied 时间: 2013-4-14 19:17
It is the same concept as if you actually had a mortgage that you were paying. Your monthly payment stays the same for the entire term, but the amount of principle that is being paid off increases with time, and the interest paid decreases.
