The value of an interest-only (IO) mortgage-backed strip is not sensitive to changes in current market interest rates.

Question

Quizplus · Accepted Answer

The value of an IO mortgage-backed strip is extremely sensitive to changes in current market interest rates, as it does not include any principal payments and relies solely on interest payments. A decrease in interest rates may increase the value of the strip, while an increase in interest rates may decrease the value of the strip.

The Value of an Interest-Only (IO) Mortgage-Backed Strip Is Not