An ARM for S 100 000 is made at a time when the expected start rate is 5 percent. The loan ~ .. il l be made with a te~ser rate of2 percent, for the first year, after which the rate will be reset. nle loan is fu lly amortizing, has a maturity of25 years and payments will be made monthly.

a. What will be the payments during the fi rst year?

b. Assuming that the resct rate is 6 percent at the beginning of year (BOy)

AppendixLO1