Which of the Following Are Not Considered a Simplifying Assumption

question 51

Multiple Choice

Which of the following are not considered a simplifying assumption indicative of the restrictive nature of the option model approach and the option-adjusted spread?

• A)The only reasons for prepayment are due to refinancing mortgages at lower rates; there is no prepayment for turnover reasons.
• B)The current discount (zero-coupon) yield curve for T-bonds is flat.
• C)The mortgage coupon rate is 10% on an outstanding pool of mortgages with an outstanding principal balance of $1 million.
• D)Mortgage loans are fully amortized, and there is no servicing fee.
• E)The interest rate movements over time change a maximum of 10% up or down each year and the time path of interest rate does not follow a binomial process.

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Definitions:

Presumptive Close

A sales technique where the salesperson assumes that the customer has already decided to buy and moves towards finalizing the sale.

Multiple-close Sequence

A sales strategy that uses a series of closing techniques, one after another, to seal a deal when a buyer shows hesitation.

Garden Tub

A large, often luxurious bathtub that is deeper and wider than standard tubs, designed for a comfortable, spa-like bathing experience.

Water Jets

Water jets are high-pressure water streams used in various applications, such as cutting materials or cleaning surfaces.