Final answer:
For an elderly retiree in a low tax bracket who relies primarily on investment income for cash flow and expects interest rates to rise, closed pool, short term to maturity mortgage-backed securities would be the most appropriate option.
Step-by-step explanation:
For an elderly retiree in a low tax bracket who relies primarily on investment income for cash flow and expects interest rates to rise in the next six months to two years, closed pool, short term to maturity mortgage-backed securities would be the most appropriate option.
Choosing a closed pool MBS means the retiree is investing in a specific pool of mortgages that cannot be added to or removed from after the security is issued, reducing the risk of unexpected changes in interest rates for the retiree.
Opting for short term to maturity MBS provides flexibility in case interest rates increase, as the retiree can reinvest the principal sooner and take advantage of higher interest rates without being locked into a long-term commitment.
This combination of closed pool and short term to maturity MBS would suit the retiree's goal of protecting their investment income and minimizing the risk associated with rising interest rates.