1.An investor sold a stock short and is worried about rising prices. To protect himself from rising prices he would place a:
　　A. stop order to sell.
　　B. stop order to buy.
　　C. limit order to sell.
　　D. limit order to buy.
　　2.With respect to mortgage-backed securities, and assuming market rates are below the mortgage rate in the pool, a decrease in interest rates would most likely cause:
　　A. Interest-only (IO) strips to decrease in value.
　　B. Principal-only (PO) strips to decrease in value.
　　C. 10 and PO strips to increase in value.
　　D. 10 and PO strips to decrease in value.
　　Answer:
　　1.B
　　A limit order to buy is placed below the current market price.
　　A limit order to sell is placed above the current market price.
　　A stop (loss) order to buy is placed above the current market price.
　　A stop (loss) order to sell is placed below the current market price.
　　A stop order becomes a market order if the price is hit.
　　2.A
　　A decrease in interest rates increases the probability of prepayments, so less interest will be collected over the life of securities. A decrease in rates will cause a smaller increase in POs value because the cash tlows are being discounted at a lower rate. However, the prepayment effect typically dominates when rates are below the mortgage rates in the pool. Thus, 105 are likely to uecrease in value, and POs will increase in value.