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George and Martha Washington are purchasing a house in Elk Grove financed with an adjustable-rate mortgage. The margin on the loan is 3.75%, and the

George and Martha Washington are purchasing a house in Elk Grove financed with an adjustable-rate mortgage. The margin on the loan is 3.75%, and the rate cap is 6.25% over the life of the loan. The current index rate is 3.90%.

What is the calculated initial interest rate of the ARM?

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