medium · Asset-Backed Securities
An investor buys a 7(a) SBA ABS at a price of 108.00. If the Constant Prepayment Rate (CPR) increases from 10% to 20%, what happens to the bond's 'Premium Amortization'?
- It accelerates, causing a decrease in the bond's net yield.
- It remains constant because SBA loans are government-guaranteed.
- It becomes positive, as SBA prepayments typically include a penalty paid to the investor.
- It slows down, increasing the bond's net yield.
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