The primary purpose of dividing a mortgage-pass through pool's principal and income flow into various tranches is to
A) allow for wider ownership of the obligations.
B) permit tax shelter from double taxation .
C) allow investors to match their risk preferences the appropriate tranch.
D) to open up greater tax benefits for faster-pay tranches.

Question

Quizplus · Accepted Answer

By dividing the mortgage-pass through pool's principal and income flow into various tranches, investors can select the tranch that matches their risk preferences. This allows for a wider range of investors to participate in the pool, as well as providing greater flexibility in the distribution of risks and rewards. Tax shelter and benefits are secondary considerations and not the primary purpose of tranche division.

The Primary Purpose of Dividing a Mortgage-Pass Through Pool's Principal