WILL DEFINITELY UPVOTE

14

Below is a payoff table that lists four mortgage options. The numbers in the table represent borrowing costs. All the decision analysis questions that deal with mortgage options are based on this narration, i.e., you may reuse the model and the resulting solution to answer related questions.

	Outcome
Decision Alternative	Rates Rise	Rates Stable	Rates Fall
1-year ARM	$66,645	$43,650	$36,560
3-year ARM	$60,857	$45,698	$42,726
5-year ARM	$55,895	$48,894	$46,134
30-year fixed	$52,276	$52,276	$52,276

What is the maximum opportunity loss incurred for the 3-year ARM decision alternative?

• A.

  $18,131

• B.

  $6,166

• C.

  $8,581

• D.

  $2,048