Tim wants to buy an apartment that costs $750,000 with an 85% LTV mortgage. Tim got a 30 year, 3/1 ARM with an initial teaser rate of 3.75% and monthly payments. The reset margin on the loan is 300 basis points above 1 year CMT. The index was 1% at the time of origination. Tim also had to pay 3 points for this loan. Suppose the index rate will remain 1% for the life of the loan. Compute the true APR for this loan.

		4.2%
		0.35%
		5.2%
		0.86%

In Q6, compute the IRR for this loan assuming Tim will prepay in 5 years.

		4.34%
		4.14%
		4.24%
		4.54%