Difference between interest rate risk and default risk

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1. Choosing the Optimal Product

In 200 words, explain the primary differences between a fixed rate and adjustable rate mortgage. Do you feel that each of these should have a place in the market? If you were looking to purchase an investment property which would you secure?

2. Risk Allocation

In 200 words, answer question #6 on page 145.

What is the difference between interest rate risk and default risk? How do combinations of terms in ARMs affect the allocation of risk between borrowers and lenders? Is this a suitable way to allocate risk?

Reference no: EM13817674

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