If an ARM Index Increased 15%, the Negative Amortization on a Loan

question 21

Multiple Choice

If an ARM index increased 15%, the negative amortization on a loan with a 5% annual payment cap is calculated by:

• A) Using the same payment as last year and deducting 5% from the principal balance
• B) Increasing the payment by 5%
• C) Totaling the difference between the payment as if no cap existed and the 5% capped payment
• D) Compounding the difference between the payment as if no cap existed and the 5% capped payments

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Definitions:

Elements

The entities on which data are collected.

Samples

Collections or subsets of data taken from a larger population, used to analyze and make inferences about the population.

Ordinal Scale

The scale of measurement for a variable if the data exhibit the properties of nominal data and the order or rank of the data is meaningful. Ordinal data may be nonnumeric or numeric.

Interval Scale

The scale of measurement for a variable if the data demonstrate the properties of ordinal data and the interval between values is expressed in terms of a fixed unit of measure. Interval data are always numeric.