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An ARM is made for $150,000 for 30 years with the following terms: Initial rate=7% Index=1-year Treasuries Margin=2% Payment cap-5% Points=2% Adjustment interval = 1 year Fully amortizing; however, negative amortization allowed if payment cap reached. The realized 1-year Treasury rates are as follows: Beginning of year (BOY) 2 = 7%; BOY 3= 8.5%; BOY 49.5%; BOY 5-11%. However, suppose the expected rate is always the current rate. Compute the end of year 2 loan balance. 149,298.34

An ARM is made for $150,000 for 30 years with the following terms: Initial rate=7% Index=1-year Treasuries Margin=2% Payment cap-5% Points=2% Adjustment interval = 1 year Fully amortizing; however, negative amortization allowed if payment cap reached. The realized 1-year Treasury rates are as follows: Beginning of year (BOY) 2 = 7%; BOY 3= 8.5%; BOY 49.5%; BOY 5-11%. However, suppose the expected rate is always the current rate. Compute the end of year 2 loan balance. 149,298.34

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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An ARM is made for $150,000 for 30 years with the following terms: Initial rate=7% Index=1-year Treasuries Margin=2% Payment cap-5% Points=2% Adjustment interval = 1 year Fully amortizing; however, negative amortization allowed if payment cap reached. The realized 1-year Treasury rates are as follows: Beginning of year (BOY) 2 = 7%; BOY 3 = 8.5%; BOY 4-9.5 % ; BOY 5-11%. However, suppose the expected rate is always the current rate. Compute the end of year 2 loan balance. 149,298.34
Transcribed Image Text:An ARM is made for $150,000 for 30 years with the following terms: Initial rate=7% Index=1-year Treasuries Margin=2% Payment cap-5% Points=2% Adjustment interval = 1 year Fully amortizing; however, negative amortization allowed if payment cap reached. The realized 1-year Treasury rates are as follows: Beginning of year (BOY) 2 = 7%; BOY 3 = 8.5%; BOY 4-9.5 % ; BOY 5-11%. However, suppose the expected rate is always the current rate. Compute the end of year 2 loan balance. 149,298.34
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