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A borrower has been analyzing different adjustable rate mortgage ( ARM ) alternatives for the purchase of a property. The borrower anticipates owning the property
A borrower has been analyzing different adjustable rate mortgage ARM alternatives for the purchase of a property. The borrower anticipates owning the property for five years. The lender first offers a $year fully amortizing ARM with the following terms:Initial interest rate percentIndex year TreasuriesPayments reset each yearMargin percentInterest rate cap NonePayment cap NoneNegative amortization Not allowedDiscount points percentBased on estimated forward rates, the index to which the ARM is tied is forecasted as follows: Beginning of year BOY percent;BOY percent; BOY percent; BOY percent.Required:a Compute the payments and loan balances for the unrestricted ARM for the fiveyear period.b Compute the yield for the unrestricted ARM for the fiveyear period. Calculate both required questions
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