Compute the Expected Value of Perfect Information -What Is the Expected Opportunity Loss for the 3-Year ARM

question 17

Multiple Choice

Compute the expected value of perfect information.
Use the below information to answer the following question(s) . Below is a payoff table with three mortgage options: $$\begin{array} { | l | l | l | l | } \hline & { \text { Outcome } } \\\hline \text { Probability } & { \mathbf { 0 . 6 } } & { \mathbf { 0 . 3 } } & { \mathbf { 0 . 1 } } \\\hline \text { Decision } & \text { Rates Rise } & \text { Rates Stable } & \text { Rates Fall } \\\hline \text { 1-year ARM } & \$ 66,645 & \$ 43,650 & \$ 38,560 \\\hline \text { 3-year ARM } & \$ 62,857 & \$ 47,698 & \$ 42,726 \\\hline \text { 30-year fixed } & \$ 52,276 & \$ 52,276 & \$ 52,276 \\\hline\end{array}$$
-What is the expected opportunity loss for the 3-year ARM?

• A) $ 7,979.60
• B) $ 3,959.40
• C) $ 6,853.50
• D) $ 8,621.40

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Definitions:

Duty of Confidentiality

A legal or ethical obligation to maintain the privacy of information and not disclose it to third parties without consent or proper authorization.

Lawyer-Client Privilege

A legal privilege that protects communications between attorneys and their clients from being disclosed without the permission of the client.

Ethical Duties

Moral obligations that individuals are expected to adhere to in their personal and professional lives.

Bias or Prejudice

Preconceived opinions or attitudes toward something or someone, often without sufficient knowledge, rationality, or fairness.