Problem 5-8Assume that a lender offers a 30-year, $142,000 adjustable rate mortgage (ARM) with the following terms:Initial interest rate = 7.5 percentIndex = one-year TreasuriesPayments reset each yearMargin-2 percentInterest rate cap-1 percent annually; 3 percent lifetimeDiscount points=2 percentBased on estimated forward rates, the index to which the ARM is tied is forecasted as follows: Beginning of year (BOY) 2-7 percent;(BOY) 38.5 percent: (BOY) 49.5 percent; (BOY) 5-11 percent.Required:a. Compute the payments and loan balances for the ARM for the five-year period.b. Compute the yield for the ARM for the five-year period.Complete this question by entering your answers in the tabs below.Required A Required BCompute the payments and loan balances for the ARM for the five-year period.Note: Do not round intermediate calculations. Round "Payments to 2 decimal places and "Loan Balance" to the nearest dollaramount.Year1Year2Year3YearLoan Balance$ 10,650.00 $148.970$10,428.00 S156,371$ 13,110 00 S 163,098s 15.489.00 S169.505

We need to determine the interest rate using the formula below:Annual interest rate = Minimum value…

Answered: a. Compute the payments and loan…

a. Compute the payments and loan balances for the ARM for the five-year period. b. Compute the yield for the ARM for the five-year period

PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)

6th Edition

ISBN:9781337117005

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter7: Using Consumer Loans

Section: Chapter Questions

Problem 4FPE

See similar textbooks

Related questions

Q: A 2-year investment of $2,000 results in a cash flow of $150 at the end of the first year and…

A: Computation of IRR:

Q: I) II) What is the present value of 10 payments of 1500 riyals each, at a rate of 12%? A loan of…

A: Present value is an estimate of future cash flows discounted at an assumed interest rate over a…

Q: Find the uniform annual amount that is equivalent to a uniform gradient series in which the ﬁrst…

A: Calculation is as follows:

Q: Consider a loan of $98,000 at 7% compounded annually, with 12 annual payments. Find the following.…

A: Loan amortization can be defined as the procedure of amortizing the loan in such a way that the loan…

Q: A bank's loan rate for a machine is 9%. Determine the effective rate on the basis of the compounding…

A: The effective interest rate or the effective annual rate (EAR) is the actual rate paid or earned on…

Q: Prepare an amortization schedule for a three-year loan of $111,000. The interest rate is 10 percent…

A: A loan amortization table is a schedule of payback of a loan in equal installments planned at a…

Q: What are the total finance charges over that four-year period

A: The finance charges are the interest payments made over the period of time of loan payments and…

Q: Construct an amortization schedule for a $275,000, 6.8% annual rate loan with 30 equal payments.

A: Loan Amount = $ 275000Loan Term = 30 YearsInterest Rate = 6.80%

Q: Consider a 30-year, 8.5% loan for $130,000 with fixed monthly payments. Construct an amortization…

A: A loan amortization table is the schedule of loan repayments which include bifurcation of principal…

Q: Assume that $464.03 invested today will grow to $8,106.65 at the end of 47 quarters. Determine the…

A: Initial investment=$464.03Future value=8106.65Period=47 quarters

Q: A loan of £70,000 is repaid in 18 annual instalments of £6,400,with the first repayment due in one…

A: A loan is a contract where money is forwarded in exchange for a promise of future repayment. It is…

Q: Find the uniform annual amount equivalent to a uniform gradient series in which the payment for the…

A: The annual equivalent amount is the equivalent amount of cash flow an cash flow with an unequal…

Q: For this investment, an initial amount of $25,000 should be paid this year (t=0). As of next year…

A: The present value method is a method of finding the productivity of the project by discounting the…

Question

Problem 5-8
Assume that a lender offers a 30-year, $142,000 adjustable rate mortgage (ARM) with the following terms:
Initial interest rate = 7.5 percent
Index = one-year Treasuries
Payments reset each year
Margin-2 percent
Interest rate cap-1 percent annually; 3 percent lifetime
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) 49.5 percent; (BOY) 5-11 percent.
Required:
a. Compute the payments and loan balances for the ARM for the five-year period.
b. Compute the yield for the 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 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
Year
Loan Balance
$ 10,650.00 $
148.970
$10,428.00 S
156,371
$ 13,110 00 S 163,098
s 15.489.00 S
169.505

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction

VIEW

Step 2: Computation

VIEW

Step 3: Formula in excel

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 4 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

None
pr.0
Problem 5-1 A price level adjusted mortgage (PLAM) is made with the following terms: Amount $95,900 Initial interest rate = 4 percent Term = 30 years = 6 percent Payments to be reset at the beginning of each year. Assuming inflation is expected to increase at the rate of 6 percent per year for the next five years: Required: a. Compute the payments at the beginning of each year (BOY). b. What is the loan balance at the end of the fifth year? c. What is the yield to the lender on such a mortgage?
Problem 5-1 A price level adjusted mortgage (PLAM) is made with the following terms: Amount $95,000 Initial interest rate = 4 percent Term = 30 years Points 6 percent Payments to be reset at the beginning of each year. Assuming inflation is expected to increase at the rate of 6 percent per year for the next five years: Required: a. Compute the payments at the beginning of each year (BOY). b. Calculate the loan balance at the end of the fifth year. c. Calculate the yield to the lender. Complete this question by entering your answers in the tabs below. Required A Required B Required C Compute the payments at the beginning of each year (BOY). Note: Do not round intermediate calculations. Round your final answers to the nearest whole dollar. Payments Year 1 Year 2 Year 3 Year 4 Year 5 Required A Required B >
None
None
QUESTION 1 A bank makes a 30 year Fully Amortizing, Fixed Rate Mortgage (FRM) for $2,000,000 at an annual interest rate of 4.125% compounded monthly, with monthly payments. What is the market value of this loan after 7 years of payments if the annual interest rate for this loan is 10% compounded monthly? O A. $ 680,688.05 O B. $1,045,425.62 OC. $1,726,113.67 O D.$1,101,017.63
Problem 54.12 A 10-year $200,000 mortgage will be paid off with level quarterly amortization payments. Assume that the interest rate on the mortgage is 6%, convertible quarterly, and that payments are made at the end of each quarter. Find the modified duration of this mortgage. Do it with formulas and not excel.
Subparts A-C are completed, please only complete D - G. Previous subpart answers: A. $ 851.68 B. $147,797 C. 7.50% Assume the following for a one-year adjustable rate mortgage loan that is tied to the one-year Treasury rate: Loan amount: Annual rate cap: Life-of-loan cap: Margin: First-year contract rate: One-year Treasury rate at end of year 1: One-year Treasury rate at end of year 2: Loan term in years: Required: Given these assumptions, calculate the following: a. Initial monthly payment. b. Loan balance end of year 1. $ 150,000 2% 5% 2.75% 5.50% 5.25% 5.50% 30 c. Year 2 contract rate, assuming the annual cap applies to the teaser rate. d. Year 2 monthly payment. e. Loan balance end of year 2. f. Year 3 contract rate, assuming the annual cap applies to the teaser rate. g. Year 3 payment.
Problem 5 You have the following two mortgage choices: Mortgage Amount Term The payment rises each year Discounts Points Costs with Loan Orignation Fixed-rate Mortgage $100,000 3 years with annual PMT 0 $1,000 2/1 Interest-only ARM $100,000 3 years with annual PMT 0 $1,000 Initial Contract Interest Rate 11.00% Margin Caps Market Index Calculate APR for each mortgage choice? 10.00% 2.00% no annual cap; 3% lifetime cap End of Year (EOY) 1: 7.0%; EOY 2: 4.5%
Question 3: The interest rate for the first five-year term of a $400,000 mortgage loan is 3.3% compounded semi-annually. The mortgage requires monthly payments over a 25-year period. Suppose that, at the end of the third year of the mortgage, the borrower makes a prepayment of $80,000. How much will the amortization period be shortened?
12