Extenstion risk & Contraction risk

CFA Level I
#1

Any idea what they are?

#2

sounds erotic

#3

ok, here you go for a security with prepayment options (e.g. ABS, MBS) Extension risk :The risk of a security lengthening in duration due to the deceleration of prepayments. Contraction risk: The risk of a security shortening in duration due to the acceleration of prepayments.

#4

supersharpshooter Wrote: ------------------------------------------------------- > sounds erotic relates to MBS i think

#5

The risk of a security lengthening in duration due to the deceleration of prepayments. As interest rates rise, the likelihood of prepayment decreases, investors are unable to capitalize on higher interest rates not good

#6

Big LII topic…