During a Period When Interest Rates Are Very Low by Historical

question 102

Multiple Choice

During a period when interest rates are very low by historical standards and are expected to increase substantially over time, individuals should choose

• A) an ARM with a rate that adjusts after three years.
• B) a fixed-rate mortgage.
• C) an ARM that adjusts after one year.
• D) an ARM with a rate that adjusts every year for five years and then converts to a fixed rate.

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Definitions:

Standard Deviation

A measure of the amount of variation or dispersion in a set of values, indicating how spread out the values are from the mean.

Poisson Random Variable

Represents the number of events occurring within a fixed interval of time or space, assuming these events happen at a constant rate and independently of the time since the last event.

Expected Value

The expected value is the long-run average value of repetitions of an experiment it represents, often used in probability and statistics.

Poisson Distribution

A probability distribution that represents the likelihood of observing a certain number of events within a specified time or space interval.