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Molly Swift has been analyzing different adjustable rate mortgage (ARM) alternatives for the purchase anew home. She anticipates owning the home for six years. The
Molly Swift has been analyzing different adjustable rate mortgage (ARM) alternatives for the purchase anew home. She anticipates owning the home for six years. The lender offers Ms. Swift a $150,000, 30 year ARM with the following terms: Initial interest rate 7.5 percent Index 1 year Treasuries Payments adjusted each year Margin-3 percent Interest rate cap-2 % annually/6 % lifetime Payment cap - none Negative amortization- No Discount points-2 percent Based on estimated forward rates computed from the yield curve on U. S. Treasury bills, the index to which the ARM is tied is forecasted to be as follows: beginning of year (BOY) 2-9 percent, BOY 3-7 percent; BOY 4-1l percent; BOY 5-13 percent, BOY 6-12 percent Compute the payments, loan balances, and yield for the ARM for the six year period
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