Ques26:

Which one of the following statements about refinancing on the market valuation of pass-through securities is correct?

Select one:

a. It has good news effect as, everything else equal, the present value of future cash flows increases due to lower interest rate.

b. It has bad news effect as, everything else equal, the present value of future cash flows decreases due to slower principal repayments.

c. It has good news effect as, everything else equal, the present value of future cash flows increases due to more interest payments in absolute terms.

d. It has good news effect as, everything else equal, the present value of future cash flows increases due to more reinvestment income.

e. It has neither good news nor bad news effect.