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Q4. Assume you are interested in a 3/1 interest-only ARM that has monthly payments and a 30-year term. The initial contract rate is 3.00% and

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Q4. Assume you are interested in a 3/1 interest-only ARM that has monthly payments and a 30-year term. The initial contract rate is 3.00% and the contract rate for year 4 is 5.00%. The lender charges two discount points. The loan amount is $400,000. A. What is the monthly payment in year 1? (5 points) B. If the loan is prepaid at the end of year 3, what is the effective interest rate? (5 points) C. If the loan is prepaid at the end of year 4, what is the effective interest rate? (5 points) Q4. Assume you are interested in a 3/1 interest-only ARM that has monthly payments and a 30-year term. The initial contract rate is 3.00% and the contract rate for year 4 is 5.00%. The lender charges two discount points. The loan amount is $400,000. A. What is the monthly payment in year 1? (5 points) B. If the loan is prepaid at the end of year 3, what is the effective interest rate? (5 points) C. If the loan is prepaid at the end of year 4, what is the effective interest rate? (5 points)

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