The Lees are applying for a mortgage for a house purchase that will close in two months. They have two options:

Option 1: They can lock in at today's interest rate, giving them a guaranteed monthly payment of $2,500.

Option 2: They can wait until they close on their house, and go with whatever the interest rate is at that time.

If interest rates go up, they estimate that they will have to pay an additional $200 on their monthly payment. If the rate goes down, they estimate that they will pay $150 less.

Their mortgage broker estimates that there is a 55% chance that rates will go up, a 30% chance that rates will go down, and a 15% probability that the rate will stay the same.

(a) Find the expected monthly mortgage payment for Option 2.$Answer

(b) Using the results from part (a), which Option should the Lees choose? Enter 1 or 2 in the blank space. Option