Adjustable-Rate Mortgages Do Not Fully Eliminate Interest-Rate Risk for All

question 50

Multiple Choice

Adjustable-rate mortgages do not fully eliminate interest-rate risk for all of the following reasons EXCEPT

• A)annual rate increases are limited.
• B)the indexes on which they are based are imperfect.
• C)financial institutions are reluctant to raise interest rates too much so as to not lose customers.
• D)interest rate can only increase by a specified amount during the term of the mortgage.

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Definitions:

Standard Costs

Predetermined or estimated costs of manufacturing, selling, or performing a service, used as benchmarks against actual costs for budgetary control and performance measurement.

Price Variances

Differences between the actual prices paid for goods or services and the expected or standard prices.

Quantity Variances

The difference between the expected amount of inputs needed for production and the actual amount used, often analyzed in cost accounting to assess efficiency.

Standard Costs

Predetermined or estimated costs of manufacturing, selling, or performing a service, used as targets and benchmarks against actual costs.