4. Prepayment risk, a risk faced by mortgage-backed security holders, is the risk that you will receive the expected cash flows from the investment sooner than expected. 3. Pass-through securities pay interest payments monthly, then the principal back in a lump sum at the end of the life of the investment. 6. The duration of a 30 year bond is likely to be close to 30 years, regardless of whether it has a higher or lower coupon rate. 7. A low coupon bond will have more price elasticity (ie, more sensitive to interest rate changes) than a high coupon bond. 8. Other things held constant, increasing a stock's required rate of return will increase the price you are willing to pay for the stock. 9. The price of an outstanding corporate bond decreases as the yield on similar securities with similar maturity and risk increases. 10. According to the "green video on the recent financial crisis, one of the factors that ultimately encouraged subprime lending was the low interest rates set by the Federal Reserve. Multiple Choice (2 points each) CHOOSE THE BEST ANSWER. 11. Based on the video Inside the Meltdown, it appeared that the main reason Lehman Brothers was allowed to fail was: A. systemic risk. B. moral hazard. C. it was a smaller and less important bank than Bear Stearns D. Ben Bernanke did not like the CEO of Lehman Brothers 12. Which of the following should have the highest yield? A. 90 day Treasury bill B. 30-year BB corporate bond. C. 30-year Treasury bond D. 10-year AA corporate bond