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An ARM loan, Loan Amount = $250,000; Monthly Payments, Index = 1-Year Treasury bill. Index at the end of year 1 is 7%. Index at the end of year 2 is 6.5%. Index at the end of year 3 is 8.0%. One Year Adjustable, Margin = 1.50%, Term = 30 years. Interest Rate Caps: annual 2% and life 5.5%, Teaser Rate = 5%. The loan has negative amortization. What is the effective cost for a 3-year holding period? 8.15% O 8.63% O 7.58% O 7.09%

An ARM loan, Loan Amount = $250,000; Monthly Payments, Index = 1-Year Treasury bill. Index at the end of year 1 is 7%. Index at the end of year 2 is 6.5%. Index at the end of year 3 is 8.0%. One Year Adjustable, Margin = 1.50%, Term = 30 years. Interest Rate Caps: annual 2% and life 5.5%, Teaser Rate = 5%. The loan has negative amortization. What is the effective cost for a 3-year holding period? 8.15% O 8.63% O 7.58% O 7.09%

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
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An ARM loan, Loan Amount = $250,000; Monthly Payments, Index = 1-Year Treasury bill. Index at the end of year 1 is 7%. Index at the end of year 2 is 6.5%. Index at the end of year 3 is 8.0%. One Year Adjustable, Margin = 1.50%, Term = 30 years. Interest Rate Caps: annual 2% and life 5.5%, Teaser Rate = 5%. The loan has negative amortization. What is the effective cost for a 3-year holding period? 8.15% O 8.63% O 7.58% O 7.09%
Transcribed Image Text:An ARM loan, Loan Amount = $250,000; Monthly Payments, Index = 1-Year Treasury bill. Index at the end of year 1 is 7%. Index at the end of year 2 is 6.5%. Index at the end of year 3 is 8.0%. One Year Adjustable, Margin = 1.50%, Term = 30 years. Interest Rate Caps: annual 2% and life 5.5%, Teaser Rate = 5%. The loan has negative amortization. What is the effective cost for a 3-year holding period? 8.15% O 8.63% O 7.58% O 7.09%
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