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Problem 5 - 6 A borrower has been analyzing different adjustable rate mortgage ( ARM ) alternatives for the purchase of a property. The borrower
Problem
A borrower has been analyzing different adjustable rate mortgage ARM alternatives for the purchase of a property. The borrower
anticipates owning the property for five years. The lender first offers a $year fully amortizing ARM with the following terms:
Initial interest rate percent
Index year Treasuries
Payments reset each year
Margin percent
Interest rate cap None
Payment cap None
Negative amortization Not allowed
Discount points percent
Based on estimated forward rates, the index to which the ARM is tied is forecasted as follows: Beginning of year BOY percent;
BOY percent; BOY percent; BOY percent.
Required:
a Compute the payments and Ioan balances for the unrestricted ARM for the fiveyear period.
b Compute the yield for the unrestricted ARM for the fiveyear period.
Complete this question by entering your answers in the tabs below.
Required A
Compute the payments and loan balances for the unrestricted ARM for the fiveyear period.
Note: Do not round intermediate calculations. Round your final answers to the nearest whole dollar.
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