Bob and Carol purchased their first home. At the time of their purchase, the typical interest rate for a 30-year fixed rate loan was between 6.5% and 7.0%. They did not care for the monthly payment required for this fixed rate loan, and believed that interest rates were more likely to decrease in the coming years than to increase. They took out a 2/2/6 adjustable rate loan instead of a fixed rate loan. Here are the facts regarding their loan at the time of the loan origination:

Index rate: 3.0% Margin: 2.5% Teaser rate: none

The loan adjusts on an annual basis. Here is the history of the index rate for the next 10 years:

Index Value at End of Year: 1 2 3 4 5 6 7 8 9 10 3.5% 4.5% 7.5% 6.0% 5.0% 5.5% 6.5% 9.5% 11.0% 12.5%

Based on the information above, answer the following questions:

1. What was the interest rate of the loan after the adjustment for the value of the index at the end of the third year?

2. What was the interest rate of the loan after the adjustment for the value of the index at the end of the eighth year?

3. What was the interest rate of the loan after the adjustment for the value of the index at the end of the tenth year?