When current mortgage rates fall sufficiently low that the present value savings of refinancing outweigh the cost of prepayment penalties (and other fees and costs), the mortgage holders are said to have a valuable:
A)put option
B)call option
C)forward agreement
D)futures contract

Question

Quizplus · Accepted Answer

Mortgage holders have a call option because they have the right, but not the obligation, to refinance their mortgage at a lower rate, effectively "calling" their existing mortgage and replacing it with a new one.

When Current Mortgage Rates Fall Sufficiently Low That the Present