A few years ago, you got married and bought a house with an adjustable rate mortgage with the

following terms:

Loan: $240,000

Term: 20 years

Initial Rate: 4%

Margin: 2% over the Index Rate

Lifetime Max: 4.5%

The index rate was 2% in year 1, 1.5% in year 2, 4% in year 3, 1% in year 4, and 1% in year 5.

a) What is your loan balance at year 5? (5pts)

b) What is the effective interest rate is paid off after year 5 (10 pts)?