In a Matrix of Transition Probabilities

question 18

Multiple Choice

In a matrix of transition probabilities,

• A)the probabilities for any column will sum to 1.
• B)the probabilities for any row will sum to 1.
• C)the probabilities for any column are mutually exclusive and collectively exhaustive.
• D)All of the above
• E)None of the above

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Definitions:

Effective Annual Rate

The interest rate on an investment or loan that considers the effects of compounding over a one-year period.

Interest

The cost of borrowing money, typically expressed as a percentage of the principal, to be paid over a specified period.

Annuity Due

A type of annuity in which payments are made at the beginning of each period, rather than at the end.

Present Value

The current worth of a future sum of money or stream of cash flows, given a particular rate of discount.