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A borrower has been analyzing different adjustat borrower anticipates owning the property for five years. The lender first offers a $160,000, 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 (BOY) 2-7 100W 4 195 percent (8005-11 percent

A borrower has been analyzing different adjustat borrower anticipates owning the property for five years. The lender first offers a $160,000, 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 (BOY) 2-7 100W 4 195 percent (8005-11 percent

Essentials Of Investments
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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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 $160,000, 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 (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..
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 $160,000, 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 (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..
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