17. Suppose you are an investor with an infinite horizon (e.g., a pension fund) and you purchase a mortgage-backed security for duration matching. You want the duration of your assets to match the duration of your liabilities. You would be most concerned about interest rates because that would represent a source of risk. a. Increasing, market price b. Increasing; reinvestment c. Decreasing; market price d. Decreasing; reinvestment e. Not enough information 18. Suppose you are a long-term investor like a pension fund in which your investment horizon, and thus the duration of your liabilities, is very long. You are considering investing in a mortgage-backed security which has time (or sequential) tranches A, B, C, and D, where A is the most senior and D is the least senior. Which tranche should you invest in and why? a. A; The duration of your liabilities is long so you want to pick a shorter asset duration to balance b. B; You want to pick a tranche sort of in the middle. c. C; C is always the right multiple choice answer so C. d. D; D has the longest duration and you want to match duration as best as you can to reduce interest rate risk e. Not enough information 17. Suppose you are an investor with an infinite horizon (e.g., a pension fund) and you purchase a mortgage-backed security for duration matching. You want the duration of your assets to match the duration of your liabilities. You would be most concerned about interest rates because that would represent a source of risk. a. Increasing, market price b. Increasing; reinvestment c. Decreasing; market price d. Decreasing; reinvestment e. Not enough information 18. Suppose you are a long-term investor like a pension fund in which your investment horizon, and thus the duration of your liabilities, is very long. You are considering investing in a mortgage-backed security which has time (or sequential) tranches A, B, C, and D, where A is the most senior and D is the least senior. Which tranche should you invest in and why? a. A; The duration of your liabilities is long so you want to pick a shorter asset duration to balance b. B; You want to pick a tranche sort of in the middle. c. C; C is always the right multiple choice answer so C. d. D; D has the longest duration and you want to match duration as best as you can to reduce interest rate risk e. Not enough information