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You are considering an ARM with the following characteristics: Mortgage amount $100,000 1st year contract rate: 7% 2nd year contract rate: 8% Discount points: 3%

You are considering an ARM with the following characteristics: Mortgage amount $100,000

1st year contract rate: 7%

2nd year contract rate: 8%

Discount points: 3%

Loan maturity with monthly payments: 10 year loan.

What is the effective yield if the loan is paid off at the end of year 2?

A. 7.93%

B. 8.23%

C. 8.87%

D. 9.22%

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