Sharon borrows an adjustable rate loan (ARM) of $100,000 with 3 year loan maturity. The initial interest rate for the loan is 8.5%, the margin is 3%, the loan amortization period is 15 years, the frequency of adjustment is 1 year (monthly compounding), no interest rate cap or payment cap. There will be a discount point of 3% for the loan. Also, the index rates for the next 2 years are 11% and 8%, respectively. What will be the effective mortgage yield for borrowing this loan?

I chose the answer : 11.98% that is Wrong . With my calculation I think the answer is 12.02%

a.) 12.47%

b.) 12.28%

c.) 11.98%. - I chose this one and I got wrong

d.) 12.02%. _ I think this is the correct answer.

Please let me know. Thank you.