Which of the Following Clauses Leads to Higher Risk for an ARMs

question 23

Multiple Choice

Which of the following clauses leads to higher risk for an ARMs lender?

• A) Negative amortization is not allowed when interest is not covered by the payment due to a payment cap
• B) There is floor for payments
• C) Adjustment interval is longer than one year
• D) All of the above

---

Definitions:

Surplus

The situation in which the quantity of goods produced exceeds the quantity demanded, often leading to a drop in prices.

Supply Increases

Refers to a situation where the quantity of a good or service that producers are willing and able to sell at a given price level rises, often leading to a decrease in prices if demand remains constant.

Equilibrium Price

The cost at which the amount of a product or service being sought after matches the amount being offered, resulting in a stable market.

Equilibrium Quantity

The quantity of goods or services supplied is exactly equal to the quantity demanded at a particular price.