Use the Information Below to Answer the Following Questions) The Probability of Rates Rising Is 0

question 23

Multiple Choice

Use the information below to answer the following questions) . The payoff table given below lists four mortgage options: $$\begin{array} { | l | l | c | c | } \hline && { \text { Outcome } } \\\hline \text { Probability } & 0.6 & { 0.3 } & 0.1 \\\hline \text { Decision } & \text { Rates Rise } & \text { Rates Stable } & \text { Rates Fall } \\\hline \text { 1-year ARM } & \$ 66,645 & \$ 43,650 & \$ 38,560 \\\hline \text { 3-year ARM } & \$ 62,857 & \$ 47,698 & \$ 42,726 \\\hline \text { 5-year ARM } & \$ 55,895 & \$ 50,894 & \$ 48,134 \\\hline \text { 30-year fixed } & \$ 52,276 & \$ 52,276 & \$ 52,276 \\\hline\end{array}$$ The probability of rates rising is 0.6, rates stable is 0.3, and rates falling is 0.1.
-What is the expected payoff of the 5-year ARM?

• A) $ 17,872.90
• B) $ 53,618.60
• C) $ 48,805.20
• D) $ 20,081.80

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Definitions:

Hydrogen Ions

Positively charged atoms of hydrogen that play crucial roles in chemical reactions, pH levels, and biological processes.

Tubular Secretion

A process in the kidneys where certain substances are actively transported from the blood into the tubular fluid to be excreted.

Renal Tubules

The tubular structures in the kidney where urine is formed through the process of filtration, reabsorption, and secretion.

Glomerular Filtration

The process by which the kidneys filter blood, removing excess waste and fluids to form urine.