Some Institutional Investors Are Concerned with Extension Risk and Others

Multiple Choice

Some institutional investors are concerned with extension risk and others with contraction risk when they invest in a pass-through. This problem can be mitigated by redirecting the cash flows of mortgage pass-through securities ________.

A) to similar bond classes.
B) to tranches.
C) so as to create securities that have the same exposure to prepayment risk.
D) so as to create securities that have the same risk/return patterns.