Series 6 - Investment Company And Variable Contracts Products Representative Exam

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What is the primary risk associated with investing in GNMAs?

Call risk
A
Market risk
B
Default risk
C
Interest-rate risk
D
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Explanations

The primary risk in GNMA has to do with changes in interest rates. When interest rates decline, GNMA prices typically do not rise as much as the prices of comparable bonds because prepayment risk of existing mortgages factor into the lower prices. This is known as prepayment risk.

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