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You are considering an Adjustable Rate Mortgage with the following characteristics: Loan amount: $300,000 Term: 25 years, with monthly payments Index in year 1: 4.0%

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You are considering an Adjustable Rate Mortgage with the following characteristics: Loan amount: $300,000 Term: 25 years, with monthly payments Index in year 1: 4.0% Index in year 2: 6.5% Margin: 2.0% Adjustment: Annual Periodic cap: 2.0% Lifetime cap: 5.0% Discount points: 2 points If the loan is repaid at the end of the second year, what is the effective cost of borrowing

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