What is generally to affect prepayment risk for a mortgage


Assignment:

George Smith is an analyst in the risk management department and he is reviewing a pool of mortgages. Prepayment risk introduces complexity to the valuation of mortgages. Which of the two factors is generally considered to affect prepayment risk for a mortgage?

I. Changes to interest rates

II. Amount of principal outstanding

a. I only

b. II only

c. Both

d. Neither

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Risk Management: What is generally to affect prepayment risk for a mortgage
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