1. Which of the following is true? Mortgage prepayment risk:
A. Rises when interest rates fall and homeowners refinance
B. Is eliminated by the use of mortgage backed securities
C. Is felt most dramatically when interest rates rise
D. Is only relevant with U.S. Treasury bonds
E. Is eliminated by the purchase of a GNMA pass-through mortgage backed security
2. What is NPV
None of the above.
The discount rate that causes the present value of a project's future value to equal the present value of costs where the future value is found by compounding inflows at WACC.
The present value of an investment's future cash flows divided by its cost.
The discounted cash flow return rate at which an investment breaks even.
The difference between the present value of a project and its cost.