As a financial adviser to individual investors, your boss hasasked you to write a memo to him so that he can recommend amortgage-backed bond to a client. The client has a particularcorporate bond in mind, but your boss thinks that a pass-throughmortgage-backed security would provide a better yield at the samerisk level and maturity. The bond that the client is considering isa 7-year, AA-rated bond with a 6.75% coupon. When it matures, theproceeds will be used for and are matched exactly with the cost ofhis daughter’s college education, which will be paid in one lumpsum. The bond your boss favors is a pass-through MBS (also 7-yearwith an AA rating), featuring a 7.15% coupon. Your economicresearch department just released a research report that predictsthat interest rates are going to decline over the next severalyears to historical lows. Write a memo to your boss of at least 300words that provides the following: Your recommendation At least 3reasons you considered to develop your recommendation Shortly afteryou were given this task, you became aware of a new CMO issue thathas an AA-rated, 7-year Class A VADM tranche, with a 7.00% couponthat uses a Z bond to protect against prepayment and extensionrisk. Write a second memo to your boss of at least 300 words thatoffers the following: What the acronym VADM means in the context ofMBS A description of the new CMO tranche and how it may or may notbe a better choice for the client than the corporate bond and theMBS that your boss initially recommended