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You buy an Interest Only Strip. The price at the time of purchase reflects a 12% expected annual prepayment rate. One hour after your purchase,
You buy an Interest Only Strip. The price at the time of purchase reflects a 12% expected annual prepayment rate. One hour after your purchase, you learn that it is actually not prepayment but default rate, and that only 80% of the defaulted balance can be recovered. The value of your security should? Note: There is no prepayment on top of that
remain the same
fall
the answer cannot be determined with the given information
rise
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