Suppose that a planned amortization class CMO has an initial range of 90% PSA to 300% PSA. For the first four years prepayments are above the initial PAC collar. What will happen to the effective lower collar?

a. The effective lower collar will increase above 90%, reducing the ability of the support tranche to absorb contraction risk.

b. The effective lower collar will increase above 90%, reducing the ability of the support tranche to absorb extension risk.

c. The effective lower collar will decrease below 90%, allowing the support tranches to bear more extension risk.

d. The effective lower collar will decrease below 90%, allowing the support tranches to bear more contraction risk.

e. None of the other answers are correct.