Consider again the hybrid mortgage issue discussed in the chapter opening story. Suppose that you finance a home on the basis of a 5/1 hybrid mortgage (five-year fixed/adjustable) plan over 30 years. The $100,000 hybrid loan plan offers an initial rate of 6.02% fixed for 60 months. The loan rate would be adjusted thereafter every 12 months to the lowest of three options: the then-current rate on one-year Treasury bills plus 2.75 percent, the previous rate plus a maximum annual cap of 2.0 percent, or a lifetime cap of 11.02 percent. There is no prepayment penalty for this type of loan. The projected interest rates by the lender after 5 years are as follows:

Period Projected APR Years 15 6.02% Year 6 6.45% Year 7 6.60% Year 8 6.80% Year 9 7.15% Year 10 7.30%

(a) Develop the payment schedule for the first 10 years. (b) Determine the total interest paid over a 10-year ownership.

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