18) Suppose that you are thinking about taking out an adjustable rate loan (ARM) with the following information:

Teaser Rate: 3.5%

Margin: 4.0%

Year 1 TSY Strip Index: 2.0%

Year 2 TSY Strip Index: 3.5%

Year 3 TSY Strip Index: 1.5%

Periodic Cap: 1.0%

Lifetime Cap: 5.0%

Caps are NOT based off of the Teaser

a) What is the interest rate in the 1^st year of the loan?

3.5%

5.5%

6.0%

7.5%

B) What is the interest rate in the 2^nd year of the loan?

3.5%

4.0%

6.0%

7.0%

C) What is the maximum possible interest rate you will pay throughout the life of the loan?

8.5%

9.0%

11.0%

12.5%