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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 for five
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 $158,000, 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 = 9 percent; (BOY 3 = 10.5 percent; (BOY) 4 = 11.5 percent; (BOY 5 = 13 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. Complete this question by entering your answers in the tabs below. Req A Reg B Compute the payments and loan balances for the unrestricted ARM for the five-year period. (Do not round in calculations. Round "Payments" to 2 decimal places and "Loan Balance" to the nearest dollar amount.) Payments Loan Balance Year 1 Year 2 Year 3 Year 4 Year 5 Reg A Reg B Compute the yield for the unrestricted ARM for the five-year period. (Do not round intermediate calculations. answer to 2 decimal places.) Yield %
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