Make No Mortgage Company is offering home buyers a new mortgage instrum or called the St ble Horne Mortgage. This mortgage is composed of both a fixed rate and an adjustible rate com ponent. Mrs. Maria Perez is interested in financing the purchase of a new home, The home, which costs $100,000, is to be financed by Sable Home Mongages (SHM) on the following terms:

interest rate nor payment cap, the adjustable portion is also for 30 years with the following terms: Initial interest rate = 9 percent = Index 1-year Treasuries Payments adjusted each year = Margin 2 percent Interest rate cap = None Payment cap None The projected one-year US Treasury-bill index, to which the ARM is tied, is as follows: BOY 2 -10 percent; BOY 3 11 percent; BOY 48 percent: BOY 5 = 12 percent. Calculate Mrs. Perez's total monthly payments and end-of-year loan balances for the first five years. Calculate the lender's yield, assuming Mrs. Perez repays the loan after five years.

b. Repeat part

(a) under the assumption that the iritial interest rate is 9.5 percent and there is an annual interest rate cap of 1 percent.AppendixLO1