Which of the Following Statements Regarding the Break-Even Point for Paying

question 23

Multiple Choice

Which of the following statements regarding the break-even point for paying discount points in order to get a lower interest rate on the loan is correct?

• A)All else equal, the break-even point for paying points on an original mortgage is longer than the break-even point for paying points on a refinance.
• B)All else equal, the break-even point for paying points on an original mortgage is longer for a taxpayer who does not make extra principal payments each year on the loan than for a taxpayer who does make additional principal payments each year on the loan.
• C)All else equal, the break-even point for a taxpayer paying points on an original mortgage is longer when the taxpayer's marginal income tax rate increases in the years subsequent to the original financing compared to a taxpayer whose marginal tax rate does not change in the years subsequent to the year in which the loan is executed.
• D)None of the choices are correct.

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Definitions:

Construct Validity

The degree to which a test or instrument accurately measures the theoretical construct or trait it is intended to measure.

Predictive Validity

The construct validity of a measure is assessed by examining the ability of the measure to predict a future behavior.

Discriminant Validity

The extent to which a concept differs from other concepts that are similar, ensuring that the measure is not reflecting other variables.

Convergent Validity

The degree to which two measures of constructs that theoretically should be related, are in fact related.