A borrower has been analyzing different adjustable rate mortgage (ARM) alternatives for the purchase of a property. The borrower anticipates owning the property for five years. The lender first offers a $157,000, 30-year fully amortizing ARM with the following terms: Initial interest rate - 6 percent Index 1-year Treasuries Payments reset each year Margin-2 percent Interest rate cap - None Payment cap = None Negative amortization - Not allowed Discount points=2 percent Based on estimated forward rates, the index to which the ARM is tied is forecasted as follows: Beginning of year (BOM) 2-7 percent; (BOY) 3-8.5 percent; (BOY) 4-9.5 percent; (BOM) 5-11 percent. Required: a. Compute the payments and loan balances for the unrestricted ARM for the five-year period. b. Compute the yield for the unrestricted ARM for the five-year period. Complete this question by entering your answers in the tabs below. Required A Required B Compute the yield for the unrestricted ARM for the five-year period. Note: Do not round intermediate calculations. Round your final answer to 2 decimal places, Yield < Required A Beques B
A borrower has been analyzing different adjustable rate mortgage (ARM) alternatives for the purchase of a property. The borrower anticipates owning the property for five years. The lender first offers a $157,000, 30-year fully amortizing ARM with the following terms: Initial interest rate - 6 percent Index 1-year Treasuries Payments reset each year Margin-2 percent Interest rate cap - None Payment cap = None Negative amortization - Not allowed Discount points=2 percent Based on estimated forward rates, the index to which the ARM is tied is forecasted as follows: Beginning of year (BOM) 2-7 percent; (BOY) 3-8.5 percent; (BOY) 4-9.5 percent; (BOM) 5-11 percent. Required: a. Compute the payments and loan balances for the unrestricted ARM for the five-year period. b. Compute the yield for the unrestricted ARM for the five-year period. Complete this question by entering your answers in the tabs below. Required A Required B Compute the yield for the unrestricted ARM for the five-year period. Note: Do not round intermediate calculations. Round your final answer to 2 decimal places, Yield < Required A Beques B
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A borrower has been analyzing different adjustable rate mortgage (ARM) alternatives for the purchase of a property. The borrower
anticipates owning the property for five years. The lender first offers a $157,000, 30-year fully amortizing ARM with the following terms:
Initial interest rate=6 percent
Index=1-year Treasuries
Payments reset each year
d Margin-2 percent
Interest rate cap = None
Payment cap None
Negative amortization Not allowed
Discount points=2 percent
Based on estimated forward rates, the index to which the ARM is tied is forecasted as follows: Beginning of year (BOY)2=7 percent;
(BOY) 3=8.5 percent; (BOY) 4-9.5 percent; (BOY) 5-11 percent.
Required:
a. Compute the payments and loan balances for the unrestricted ARM for the five-year period.
b. Compute the yield for the unrestricted ARM for the five-year period.
Complete this question by entering your answers in the tabs below.
Required A Required B
Compute the yield for the unrestricted ARM for the five-year period.
Note: Do not round intermediate calculations. Round your final answer to 2 decimal places,
Yield
< Required A
Beqi>
Transcribed Image Text:A borrower has been analyzing different adjustable rate mortgage (ARM) alternatives for the purchase of a property. The borrower
anticipates owning the property for five years. The lender first offers a $157,000, 30-year fully amortizing ARM with the following terms:
Initial interest rate - 6 percent
Index=1-year Treasuries
Payments reset each year
Margin=2 percent
Interest rate cap - None
Payment cap None
Negative amortization - Not allowed i
Discount points=2 percent
Based on estimated forward rates, the index to which the ARM is tied is forecasted as follows: Beginning of year (BOY 2-7 percent
(BOY) 38.5 percent: (BOY) 4-9.5 percent: (BOY) 5-11 percent.
Required:
a. Compute the payments and loan balances for the unrestricted ARM for the five-year period.
b. Compute the yield for the unrestricted ARM for the five-year period.
Complete this question by entering your answers in the tabs below.
Required A Required B
Compute the payments and loan balances for the unrestricted ARM for the five-year period.
Note: Do not round intermediate calculations. Round "Payments" to 2 decimal places and "Loan Balance to the nearest dollar
amount.
Year 1
Year 2
Year 3
Loan Balance
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