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You are a mortgage-backed securities investor with a broad portfolio of bonds backed by home mortgages. In recent times, interest rates have fallen drastically, and
You are a mortgage-backed securities investor with a broad portfolio of bonds backed by home mortgages. In recent times, interest rates have fallen drastically, and as a result many homeowners have begun to refinance their mortgages. What does this refinancing "wave" do for your expected returns? The best answers will be in terms of both reinvestment risk and the convexity properties of mortgage backed securities.
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