The Purpose of a Rate Cap with an Adjustable Rate

question 7

Multiple Choice

The purpose of a rate cap with an adjustable rate mortgage is to:

• A) minimize interest costs.
• B) prevent changes in the amount of the monthly payment.
• C) increase negative amortization.
• D) restrict the amount by which the interest rate can increase.
• E) lower the escrow account.

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Definitions:

Service Cost

The actuarial present value of benefits earned by employees during a given period, included in the calculation of pension expense.

Actuarial Present Value

A calculation used to determine the present value of a future series of payments or receipts, taking into account variables such as mortality, investment earnings, and expense risks.

Net Periodic Pension Cost

The net periodic pension cost is the total expense recognized in a period related to an employer's pension plan, including service costs, interest costs, expected returns on plan assets, and any amortizations.