What is the burnout effect?
What will be an ideal response?
The burnout effect refers to the incentive to refinance being "extinguished." This occurs because the composition of borrowers in a mortgage pool changes over time due to seasoning and refinancing patterns. More specifically, as mortgage rates decline, those borrowers in the pool who are the most interest-rate sensitive prepay. The balance of the borrowers in the pool are less rate sensitive but as mortgage rates continue to decline, these borrowers prepay. As mortgage rates continue down, there is less additional prepayment activity and at some point, the incentive to refinance is "burned out."
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Which of the following is a possible trap of a price-cutting strategy?
A) Low prices usually achieve increases in both market share and market loyalty when customers switch. B) The company might need additional business because it has excess plant capacity. C) The company can initiate price cuts to dominate the market through lower costs. D) Consumers might not demand price concessions in the future. E) Competitors that match low prices might have longer staying power because of deep cash reserves.
If fixed costs are $24,000, variable costs are $25 per unit, and the product sells for $45, the total contribution margin at the breakeven point is $1,200
Indicate whether the statement is true or false
Your choice of physician care will be greater if you join an HMO with
A) a group-staff arrangement. B) an individual practice arrangement. C) preferred provider arrangement. D) an indemnification agreement.
Which of the following statements is CORRECT? (Assume that the risk-free rate is a constant.)
A. If the market risk premium increases by 1%, then the required return will increase for stocks that have a beta greater than 1.0, but it will decrease for stocks that have a beta less than 1.0. B. The effect of a change in the market risk premium depends on the slope of the yield curve. C. If the market risk premium increases by 1%, then the required return on all stocks will rise by 1%. D. If the market risk premium increases by 1%, then the required return will increase by 1% for a stock that has a beta of 1.0. E. The effect of a change in the market risk premium depends on the level of the risk-free rate.