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Financial Risk Manager Part 1

Financial Risk Manager Part 1

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A hedge fund's market risk department is in the process of developing stress test scenarios to assess the impact of different market factors on their portfolio of agency-backed Mortgage-Backed Securities (MBS). The objective is to identify factors that could potentially result in a higher rate of prepayments for the MBS in the portfolio. With the assumption that all other conditions remain unchanged, which of the following factors is most likely to lead to an increase in prepayments within the portfolio?

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