An interest-only ARM is made for $218,000 for 30 years. The start rate is 5 percent and the borrower will make monthly interest-only payments for three years. Payments thereafter must be sufficient to fully amortize the loan at maturity. Required: a. If the borrower makes interest-only payments for three years, what will the payments be? b. Assume that at the end of year 3, the reset rate is 6 percent. The borrower must now make payments so as to fully amortize the loan. What will the payments be?
An interest-only ARM is made for $218,000 for 30 years. The start rate is 5 percent and the borrower will make monthly interest-only payments for three years. Payments thereafter must be sufficient to fully amortize the loan at maturity. Required: a. If the borrower makes interest-only payments for three years, what will the payments be? b. Assume that at the end of year 3, the reset rate is 6 percent. The borrower must now make payments so as to fully amortize the loan. What will the payments be?
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 interest-only ARM is made for $218,000 for 30 years. The start rate is 5 percent and the borrower will make monthly interest-only payments for three years. Payments thereafter must be sufficient to fully amortize the loan at maturity.
Required:
a. If the borrower makes interest-only payments for three years, what will the payments be?
b. Assume that at the end of year 3, the reset rate is 6 percent. The borrower must now make payments so as to fully amortize the loan. What will the payments be?
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