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Given the following information, which ARM should have the lowest initial interest rate? % Margin above index Adjustment Interval Interest Rate Cap ARM1 3% 6

Given the following information, which ARM should have the lowest initial interest rate?

% Margin above index Adjustment Interval Interest Rate Cap

ARM1 3%

6 months None

ARM2 ARM3 2% 3%

1year 1year 1% per year None

(The three ARMs are identical in all other aspects) Briefly explain your answer! (2points)

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