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
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![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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbf9c0aa8-f0c2-40a6-a625-b5a0e0c97da9%2F0065d498-8091-4353-9c1a-88251a8f3dcc%2F31rflxv.jpeg&w=3840&q=75)
Transcribed Image Text: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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