Question: Suppose that you are thinking about taking out an adjustable rate loan (ARM) with the following information: Teaser Rate: 3.5% Margin: 4.0% Year 1 TSY

Suppose that you are thinking about taking out an adjustable rate loan (ARM) with the following information: Teaser Rate: 3.5% Margin: 4.0% Year 1 TSY Strip Index: 2.0% Year 2 TSY Strip Index: 3.5% Year 3 TSY Strip Index: 1.5% Periodic Cap: 1.0% Lifetime Cap: 5.0% Caps are NOT based off of the Teaser

What is the interest rate in the 1st year of the loan?

What is the interest rate in the 2nd year of the loan?

What is the maximum possible interest rate you will pay throughout the life of the loan?

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