NOT listed as a reason to avoid large mortgage investments?

• A. They are not part of the core business strategy
• B. They are illiquid
• C. They provide stable cash flows
• D. They are not subject to credit risk

Answer: (C)

The idea being tested is evaluating what would truly deter an investor from putting a large stake into mortgage investments. Large mortgage holdings are typically scrutinized for liquidity risk, how well they fit with the organization’s strategic focus, and the credit risk of the borrowers. They tend to be illiquid, meaning it can be hard to exit positions quickly without price concessions. If mortgages aren’t part of the core business, concentrating capital there can also increase risk and reduce alignment with long-term plans. Credit risk is inherent because borrowers may default, and cash flows can be affected by interest rate moves and prepayments.

The statement about providing stable cash flows stands in contrast to those downsides. Stable, predictable income is a benefit of mortgage investments, not a drawback or a reason to avoid them. So this attribute would not be listed as a reason to avoid large mortgage investments, making it the correct choice.