Describe the Major Tools and Criteria for Decision Making The Probability of Rates Rising Is 0

question 21

Multiple Choice

Describe the major tools and criteria for decision making. Use the information below to answer the following question(s) . The payoff table given below lists four mortgage options: $\begin{array}{|l|l|l|l|}\hline &\text { Outcome }\\\hline \text { Probability } & {\mathbf{0 . 6}} &{\mathbf{0 . 3}} &{\mathbf{0 . 1}} \\\hline \text { Decision } & \text { Rates Rise } & \text { Rates Stable } & \text { Rates Fall } \\\hline \text { 1-year ARM } & \$ 66,645 & \$ 43,650 & \$ 38,560 \\\hline \text { 3-year ARM } & \$ 62,857 & \$ 47,698 & \$ 42,726 \\\hline \text { 5-year ARM } & \$ 55,895 & \$ 50,894 & \$ 48,134 \\\hline \text { 30-year fixed } & \$ 52,276 & \$ 52,276 & \$ 52,276 \\\hline\end{array}$ The probability of rates rising is 0.6, rates stable is 0.3, and rates falling is 0.1.
-Which of the following is considered the best expected value decision?

• A) 1-year ARM
• B) 3-year ARM
• C) 5-year ARM
• D) 30-year fixed

---

Definitions:

Definition By Negation

Explaining what something is by stating what it is not, a method used to clarify concepts by contrasting them.

Class Definition

In programming, a description of what an object will be and the operations (methods) that can be performed on it or by it.

Synonym Definition

The description of a word that has the same or nearly the same meaning as another word in the same language.

Sarcasm, Wit, Or Irony

Forms of verbal expression often used to convey humor or critique, through mock praise, clever remarks, or highlighting contradictions.