Question

Financial contracts involving investments mortgages loans and so on are based on either a fixed or a variable interest rate. assume that fixed interest rates are used throughout this question

Answer 1

The answer is: Fixed or variable interest rate

If the debtors choose fixed interest rate, the number of interest rate does not fluctuate until the end period of the loan, which make it more safe/stable. In variable interest rate, the rate can fluctuate depending on the market's condition, which is more risky but you had the chance to pay less.