Assume that a lender offers a 30 year, $140,000 adjustable rate mortgage (ARM) with the following terms Initial interest rate 7 5 percent Index one year Treasuries Payments reset each year Margin 2 percent Interest rate cap 1 percent annually 3 percent lifetime 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 (BO ) 3 8 5 percent (BOY)4 9 5 percent (BO ) 5 11 percent Required a Compute the payments and loan balances for the ARM for the five year period b Compute the yield for the ARM for the five year period

Question

Assume that a lender offers a 30  year, $140,000 adjustable rate mortgage (ARM) with the following terms  Initial interest rate  7 5 percent Index   one year Treasuries Payments reset each year Margin  2 percent Interest rate cap  1 percent annually  3 percent lifetime 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  (BO ) 3 8 5 percent  (BOY)4 9 5 percent  (BO ) 5 11 percent  Required  a  Compute the payments and loan balances for the ARM for the five year period  b  Compute the yield for the ARM for the five year period

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Question

Assume that a lender offers a 30 -year, $140,000 adjustable rate mortgage (ARM) with the following terms: Initial interest rate =7.5 percent Index = one-year

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