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

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA3: Time Value Of Money

Section: Chapter Questions

Problem 17E

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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

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Correct pls thNks