The Initial Rate on an ARM Will Typically Be

question 71

Multiple Choice

The initial rate on an ARM will typically be

• A) relatively low, which benefits the homeowner.
• B) relatively high to allow the bank to recoup costs.
• C) about the same as a fixed-rate loan of the same maturity.
• D) set by state law.

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Definitions:

Operating Cycle

The average period of time between the acquisition of inventory by a business and the receipt of cash from sales of the inventory, encompassing both the purchase of inventory and the collection of receivables.

Interest Expense

The cost incurred by an entity for borrowed funds.

Current Liabilities

Obligations or debts that a company must pay within one year or within its normal operating cycle if longer.

Interest-Bearing Notes

Debt securities that pay interest to the holder at a fixed or variable rate until maturity.