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A family is considering purchasing a new home and wants to finance $150,000. Three mortgage options are available and the payoff table for the outcomes
A family is considering purchasing a new home and wants to finance $150,000. Three mortgage options are available and the payoff table for the outcomes is shown below. The payoffs represent total interest paid under three future interest rate situations Outcome Decision Rates Rise Rates Stable Rates Fall 2-year ARM $66,645 $43,650 $38,560 5-year ARM $62,857 $47,698 $42,726 25-year fixed $52,276 $ 52,276 $52,276 What is the maximum opportunity loss incurred for the 2-year ARM? 14,369
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