7) MakeNu Mortgage Company is offering a new mortgage instrument called the Stable Mortgage. This mortgage is composed of both

a fixed rate and an adjusted rate component. MRS. Maria Perez is interestd in financing a property, which cost $138,000, and is to be financed

by Stable Home Mortgage (SHM) on the following terms:

The SHM requires a 5% down payment, cost the borrower 2 discount points, and allows 75% of the mortgage to be fixed and 25% to be adjustable

The fixed portion of the loan is for 30 years at an annual interest rate of 10.5%. Having neitheran interest rate nor payment cap, the

adjustable portion is also for 30 years with the following terms:

Initial interest rate=9%

Index=1-year Treasuries

Payments reset each year

Margin=2 %

Interest rate cap=NONE

Payment cap=NONE

The project 1-year U>S> Treasury-bill index, to which the ARM is tied, is as follows:

(BOY) 2=10%, (BOY) 3=11%, (BOY) 4=8%, (BOY) 5=12%.

Required:

A 1) Calculate MRs. Perez's total monthly payments and end-of-year loan balances for the 1st 5 years.

B 1) Calculate Mrs Perez's total monthly payments and end-of year loan balances for the 1st 5 years, under the assumption that the initial

B 2) Calculate the lender's yield, assuming Mr.Perez repays the loan after 5 years, under the assumption that the initial interest rate is 9.5%

and there is an annual interest rate cap of 1 % assumption that the initial interest rate is 9.5% and there is an annual interest rate cap of 1%