What are contraction risk and extension risk

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Reference no: EM131279720

1. Why is an assumed prepayment speed necessary to project the cash flow of a mortgage pass through security?

2. 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?

Reference no: EM131279720

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