Consider a $5,000,000, 25-year ARM with monthly payments and annual interest adjustments. The initial interest rate is 6.5%. The index for the loan is 1-year US Government bonds, currently yielding 5%. The loan has a margin of 200 basis points.

(a) Is the loans initial interest rate a teaser rate? How do you know?

(b) If 1-year T-bonds remain at 5%, what will be the applicable interest rate for this mort- gage after the first year?

(c) What are the initial monthly payments on this loan?

(d) Assuming T-Bonds remain at 5%, what will be the monthly payments after the first year?

(e) Under that assumption (and assuming no discount points), what is the forecasted yield- to-maturity on this loan at the time it is issued.