1.) Why is it important to match the frequency of the interest rate to the frequency of the cash flows?
2.) Why aren’t the payments for a 15 year mortgage twice the payments for a 30 year mortgage at the same rate?
3.) What do we mean when we refer the “opportunity cost” of capital?
1. In case of an adjustable rate mortgage, frequency of interest rate should be matched to thefrequency of cash flow. This is required to know the exact liability of the payment at thedate of…