Assignment:
Q1. Why is an assumed prepayment speed necessary to project the cash flow of a mortgage pass through security?
Q2. a. What is meant by prepayment risk for a residential mortgage-backed security?
b. What are contraction risk and extension risk?
c. “By creating a CMO, an issuer eliminates the prepayment risk associated with the underlying pool of mortgage loans.” Do you agree with this statement?
Your answer must be, typed, double-spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format and also include references.