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You wish to purchase a property for $600,000. You intend to make a 20% downpayment and you have the money to do so. You have

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You wish to purchase a property for $600,000. You intend to make a 20% downpayment and you have the money to do so. You have two mortgage choices. You can finance the remaining 80% with a 30 year fixed rate mortgage at an interest rate of 2.75% with $3000 in closing costs. Alternatively, you can choose a 30 year, 5/1 ARM with an interest rate of 5%. The ARM has closing costs of $7000. The ARM has an annual cap of 1% and a lifetime cap of 5%. Assume a worst case scenario (for you, the borrower) for interest rates throughout. What is the effective rate on the ARM if you plan to sell the property in 5 years? Multiple Choice O 1.32% O 87% 196 2.79%

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