1.An investor, such as a bank, may prefer to invest in securities backed by a pool of mortgages purchased in the secondary market rather than in an equal dollar amount of mortgage loans because

a. mortgage backed securities eliminate prepayment risk for the investor.

b. mortgage backed securities diversify credit risk for the investor.

c. mortgage backed securities offer higher yields than individual mortgages.

d. mortgage backed securities returns are tax-exempt.

2.What risk characteristic(s) does the tranche structure of a CMO createdfrom a block ofGNMA (Ginnie Mae) "vanilla" mortgage pass-through securitiesalter for the CMO investors as compared to holding a similar dollar amount of the Ginnie Mae pass-through securities as investments?

a.Default risk

b.Liquidity risk

c.Prepayment risk

d.All of the above.