3. Suppose Mr. Mark Juice is considering an adjustable rate of mortgage (AMR) with the following characteristics

Mortgage amount $100,000

Index 1-year Treasury bill (TB) yield

Margin 2.50

Discount points 2.00

Loan maturity 30 years

Payment cap 9%

(a) If the TB yield is currently 6 percent, what is the monthly payment for the first year? (Assume the loan is fully indexed from the outset) (b) If the index moves to 7.5 percent at the end of the first year, what is the monthly payment for year 2? (c) If the index moves to 9.5 percent at the end of the second year, what is the monthly payment for year 2? Will the negative amortization be triggered? If yes, how much more will Mr. Juices lender add the accumulated interest back to his principal? (d) If the loan is paid off at the end of year 3, what is the effective cost (yield)?