Consider an adjustable rate mortgage (ARM) of $100,000 with a maturity of 30 years and monthly payments. At the end of each year, the interest rate is adjusted to become two percentage points above the index. There is an annual cap of 300 basis points, and a lifetime cap of 500 basis points. (i.e., with 3/5 interest rate caps). The lender offers a teaser of 1% for the first year

The following are the current and future index rates:

Please show your work on an excel sheet or financial calculator

If the loan is repaid at the end of year three (3), what amount of discount points should the lender have charged to earn an effective yield of 9%?

a 3.22 points

b.3.22 points

c 2.57 points

d. 3.75 points

e 2.95 points

f. 4.18 points

4). How much interest expense of the loan will be paid in year 1, 2, and 3?

O $5,867.88, $8,705.26, $6,700.32

O $1,613.23, $1,298.67, $805.10

O $7,166.55, $9,510.36, $7,946.99

$4,467.00, $5,867.88, $8,705.26

O $597.21, $792.53, $662.25

O $1,298.67, $805.10, $1,246.67

How much principal of the loan will be repaid (i.e., amortization) in year 1, 2, and 3?

$1,298.67, $805.10, $1,246.67

O $4,467.00, $5,867.88, $8,705.26

O $7,166.55, $9,510.36, $7,946.99

What is the balance of the loan at the end of year 1, 2, and 3?

O $98,387, $97,088, $95,709

O $96,699, $95,709, $94,283

O $98,386, $96,699, $96,283

O $98,653, $97,088, $95,709

O $98,387. $97.188, $96,001

$98,387, $97,088, $96,283

O $98,653, $97,088, $96,283

$5,867.88, $8,705.26, $6,700.32

$1,613.23, $1,298.67, $805.10

O $597.21, $792.53, $662.25

Time T-Bill Yield At origination (for year 1)= 3.50% At end of year 1 (for year 2)= 4.00% At end of year 2 (for year 3)= 8.00% At end of year 3 (for year 4)= 5.00% At end of year 4 (for year 5)= 11.00% 1). What are the contract rate for years 1, 2, 3, and 4? 4.50%, 6.00%, 9.00%, 7.00% 5.50%, 6.00%. 9.00%, 8.00% 4.50%, 6.00%, 10.00%, 7.00% O 4.50%, 7.00%, 10.00%, 8.00% O 5.50%, 6.00%, 10.00%, 7.00% 5.50%, 5.00%, 10.00%, 7.00% Time T-Bill Yield At origination (for year 1)= 3.50% At end of year 1 (for year 2)= 4.00% At end of year 2 (for year 3)= 8.00% At end of year 3 (for year 4)= 5.00% At end of year 4 (for year 5)= 11.00% 1). What are the contract rate for years 1, 2, 3, and 4? 4.50%, 6.00%, 9.00%, 7.00% 5.50%, 6.00%. 9.00%, 8.00% 4.50%, 6.00%, 10.00%, 7.00% O 4.50%, 7.00%, 10.00%, 8.00% O 5.50%, 6.00%, 10.00%, 7.00% 5.50%, 5.00%, 10.00%, 7.00%