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

question 41

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 decisions has the largest expected payoff?

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

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Definitions:

Shipbuilding Industry

A sector of the economy that designs, constructs, and repairs ships, crucial for transportation, military, and trade purposes.

Task System

A labor system used on plantations, particularly in the cultivation of rice and cotton, where enslaved people were assigned specific tasks to complete each day, as opposed to working from sunrise to sunset.

Slave

A person who is the legal property of another and is forced to obey them.

Quota

A fixed share or allocation of something, often applied to trade limitations, immigration controls, or production targets.