A lender offers a 30-year, $600,000 1/1 ARM (adjustable rate mortgage). The initial rate (teaser rate) is 4% and is only valid for year 1, The margin is 200 bps (2%). The interest rate cap is 1% annually and the lifetime cap is 5%. The market index rate is based on 1-year treasury yield. The market index rate for years 2-5 are below.

Year 2 Year 3 Year 4 Year 5

Index 5.00% 6.50% 7.00% 9.50%

a) Please determine the annual interest rate for years 2, 3, 4, 5 respectively (0.25 point for each, 1 point in total)
b) Please generate the amortization table for years 1-5 for this loan (including beginning balance, monthly payment, interest payment, principal payment, ending balance) (2 points)
Your answer
	a)		Year 1	Year 2	Year 3	Year 4	Year 5
		Index
		Margin
		Composite rate
		Teaser rate
		Interest rate w/ caps