were no'Costs to rene dropped bęlow the rate on your mortgage., In actuality, however, there are1. Comparing two population meansConsider a pool of home mortgages. Prepayments of mortgąges in the.pool affect the mortgages'cash flow, so mortgage lenders, servicers, and investors aff have an. interest in predicting mortgageprepayments. Mortgages may Be prepaid 'for a variety of purposes, including seiling the nomė,taking cash out of the property to'fund home improvéments pr other consumer expenditures, 'orrefinančing the mortgage to change the monthly payment scheđūle.Narrow your, focus to mortgage prepayments that are made for the purpose of refinancing. If thereyou would refinance to reduce your monthly payments every time thecurrent mortgage rateCosts to refinanting, such as points and closing fees., Therefore the spread Betwen the currentmortgage rate and your own rate.must be big enough to more than máke up för the costs, or youwouldn't be intêrested in refinăncing.The econqmics of refinancing suggest that comPareIC8 Scores. Borrowers with good creditrefinanced mprtgages have Borrowers with higherhistories (high credit scores) pay lower costs when they refinance.mortgages that aren't refinanced.Define population 1 as mortgages that are refinanced, and define population 2 as mortgages thatare not refinanced. Let uj equal the mean FICO score of borrowers who refinance their mortgages,and let u2 equal the mean FICO score of borrowers who don't refinance. Similarly, let o1 and 02equal the standard deviations of borrower FICO scores for populations 1 and 2. Assume that o1 =45 and o2 = 66.In a study, professor Michael LaCour-Little selected independent random samples of mortgageswere refinanced and mortgağes that were no refinancedL and he coiected dataon borrowerFICO Scores. (Source: Michael LaCour-Little, Another.Look at the Roje of Borrower Characteřisticsin Předičting Mortgage Prepayments," Journal'of Housing Research, Volumē 10, Issue 1.)For the sample drawn from refinanced mortgages, the sample size n, =124, and the sample meanX1740. For the sample drawn from mortgages that were not refinanced, the sample size n2%D124, and the sample mean x2 = 720. Histograms of the sample data suggest that the populationsare not extremely nonnormal. (Note: The sample means match those from the study, but thesample sízes have been reduced.)The point estimate of u1- u2 is 20In this study, the sampling distribution of x1X2 is approximated by aa mean of 20normaland adistribution withof 7.1735standard deviationUse the Distributions tool to help you answer the questions that follow. Use the Distributions tool to help you answer the questions that follow.Standard NormalDistributionMean = 0.0Standard Deviation =1.0O O O-3-2-123The 99% confidence interval estimate of the difference between u1 and µ2 is LCL =1.521to UCL =38.479You want todetermine whether the mean FICO score of the borrower is higher for refinancedmortgages than for mortgages that are not refinanced, as the economics of refinancing suggests.You test the hypothesis thất there is no difference between the mean FICO'scores.The null and alternative hypotheses are formulated as:O Ho: X1X2: 0, Hi: X] — х2 > 0O Họ: µ1 - µ2 2 0, H1: µ1 - µ2 + 0O Ho: H1- 42 2 0, H1: µ1 - µ2 < 0O Ho: µ1 - µ2 =:0, H1: µ1 - µ2 > 0The test statistic for the hypothesis test isz = 2.79The p-value is 0.0026A level of significance of a = 0.01 is specified for the study. The null hypothesis isrejectedthe mean FICO score of the bórrower is higher for refinanced mortgages than for mortgages thatTherefore, you cannotconclude that there is enough evidence to infer thatåre not refiñanced.

Name: were no'Costs to rene dropped bęlow the rate on your mortgage., In ac
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Description: were no'Costs to rene dropped bęlow the rate on your mortgage., In actuality, however, there are1. Comparing two population meansConsider a pool of home mortgages. Prepayments of mortgąges in the.pool affect the mortgages'cash flow, so mortgage lend