Which of the Following Descriptions Most Accurately Reflects the Risk

question 19

Multiple Choice

Which of the following descriptions most accurately reflects the risk position of an ARM lender in comparison to that of a FRM lender? Interest Rate Risk Default Risk

• A) Higher Higher
• B) Lower Lower
• C) Higher Lower
• D) Lower Higher

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Definitions:

Pretax Return

Pretax return is the income generated by an investment or business before taxes are deducted.

Net Present Value

The divergence in current value between cash receipts and disbursements over a set period.

Investment Projects

Initiatives undertaken by businesses to invest in resources with the expectation of generating future revenues or reducing costs.

Discount Factor

A factor employed in the discounted cash flow (DCF) methodology to calculate the current value of anticipated cash flows.