#Mortgage-Backed Securities Quiz

What type of risk is avoided during the accrual period of a Z-bond tranche?

A. Purchasing power risk
B. Price risk
C. Prepayment risk
D. Reinvestment risk

Reveal Answer

D) Reinvestment risk – Z-bond tranches will accrue interest, so there will be no cash flows to reinvest compared to most other tranches that will be paying interest immediately. Thus compared to other types of tranches, a Z has much less (initially no) reinvestment risk.

What will I learn in the Mortgage-Backed Securities Course?

Understand the different types of Mortgage-Backed Securities, factors that influence their investment characteristics, analytic techniques used to evaluate risk and return, and MBS trading/settlement.