Use the Information Below to Answer the Following Question(s) The Probability of Rates Rising Is 0

question 18

Multiple Choice

Use the information below to answer the following question(s) . Below is a payoff table that lists four mortgage options: $\begin{array}{|l|l|l|l|}\hline &\text { Outcome }\\\hline \text { Probability } & {\mathbf{0 . 6}} &{\mathbf{0 . 3}} &{\mathbf{0 . 1}} \\\hline \text { Decision } & \text { Rates Rise } & \text { Rates Stable } & \text { Rates Fall } \\\hline \text { 1-year ARM } & \$ 68,246 & \$ 47,487 & \$ 36,450 \\\hline \text { 3-year ARM } & \$ 64,897 & \$ 49,356 & \$ 44,898 \\\hline \text { 5-year ARM } & \$ 57,240 & \$ 52,988 & \$ 50,642 \\\hline \text { 30-year fixed } & \$ 59,720 & \$ 59,720 & \$ 59,720 \\\hline\end{array}$ The probability of rates rising is 0.6, rates stable is 0.3, and rates falling is 0.1. Answer the following questions by creating a decision tree.
-Which of the following is considered the worst expected value decision?

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

Understand the significance of the slope and coefficients in a regression model.

Understand the definitions and roles of estimated regression coefficients in the regression equation.

Grasp the significance of regression slope coefficient in determining the relationship between variables.

Comprehend the concept of minimization of errors in regression analysis and the principle of least squares.

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Definitions:

Revenue Streams

Various sources from which a business earns money, contributing to its overall income.

CVP

Cost-Volume-Profit Analysis, a financial tool used to determine how changes in costs and sales volume affect a company's operating income and net income.

Better Value

Describes a product or service that offers more favorable conditions or advantages for its cost compared to other options.

Competition

The rivalry between businesses or individuals over customers, market share, and resources.