Assume that a lender offers a 30-year, $150,000 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

Fully amortizing; however, negative amortization allowed if interest rate caps reached 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=8.5 percent; (BOY) 4=9.5 percent; (EOY) 5 = 11 percent.

Compute the payments, loan balances, and yield for the ARM for the five-year period.