They Saw in the Newspaper That They Can Get a Fixed

question 95

Multiple Choice

They saw in the newspaper that they can get a fixed rate mortgage for 6.65% or a two-year ARM with an initial rate of 5.50%.Which is true about their mortgage choices?

• A)The fixed-rate mortgage has an attractive rate but is more risky for them.
• B)The ARM initial rate is lower so their PITI will be lower.
• C)Due to Maria's job the ARM would be the better choice.
• D)Both B and C are correct.

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Definitions:

Sustainable Growth Rate

The maximum rate at which a company can grow its revenues and profits without needing to increase financial leverage.

Debt-Equity Ratio

An indicator of a firm's use of financial debt, found by dividing the total amount of liabilities by the equity owned by stockholders.

Retention Ratio

The proportion of net income that is retained in the company rather than paid out to shareholders as dividends.

Growth Rate

A measure of the increase in size, number, value, or strength of a business or other entity's key metric over a specified period of time.