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 $$151,000,30-$year fully amortizing ARM with the following

terms:

Initial interest rate $=6$ percent

Index $=1-$year Treasuries

Payments reset each year

Margin $=2$ percent

Interest rate cap $=$ None

Payment cap $=$ None

Negative amortization $=$ Not allowed

Discount points $=2$ percent

Based on estimated forward rates, the index to which the ARM is

tied is forecasted as follows: Beginning of year $($BOY$)2=7$

percent; $(BOY)3=8\mathrm{.}5$ percent; $(BOY)4=9\mathrm{.}5$ percent; $(BOY)5=11$

percent.

Required:

a$.$ Compute the payments and loan balances for the

unrestricted ARM for the five$-$year period.

b$.$ Compute the yield for the unrestricted ARM for the five$-$year

period.