Task 2: Adjustable-Rate Mortgages Loan amount $145,000,000 Initial rate 5.75% Index 1-year Treasury Bill Adjustment interval 1 year Margin 2.5% Floor/cap 2.5% annual, 5% lifetime based on initial index plus margin Payment interval annual Term 10 years Fully amortizing over 25 years Payments made quarterly 2% origination fee, 3% prepayment penalty Exhibit 1 below shows the data you have obtained from the yield curve published by the Department of the Treasury. 1. Find the expected interest rate schedule for the first five years. 2. Find the effective annual rates for the loan considered for the first five years. 3. Find the expected payment schedule for the first five years. Exhibit 1: Yield Curve Time to Maturity Yield to Maturity 1 5.10% 2 5.65% 3 5.94% 4 6.13% 5 6.15% 6 6.19% 7 6.24% 8 6.31% 9 6.43%