Consider a 30-year $200,000 5/1 ARM having a 2.6% margin and based on the CMT index Assume that it carries a payment cap of 8% and the monthly payments for the 6th year are $1448 77 at an annual interest rate of 8.1%. Also assume that the CMT index is 8.3% at the beginning of the 7th year and all interest rates are compounded monthly (a) Calculate the unpaid balance of the loan at the beginning of the 7th year (b) Calculate the monthly payment for the 7th year without using the payment cap (c) Calculate the monthly payment for the 7th year using the payment cap (d) How much interest is due for the 73rd month? (e) Determine the unpaid balance at the end of the 73rd month CITED (a) The unpaid balance at the beginning of the 7th year is S (Round the final answer to the nearest cent as needed Round all intermediate values to six decimal places as needed)

Consider a 30-year $200,000 5/1 ARM having a 2.6% margin and based on the CMT index Assume that it carries a payment cap of 8% and the monthly payments for the 6th year are $1448 77 at an annual interest rate of 8.1%. Also assume that the CMT index is 8.3% at the beginning of the 7th year and all interest rates are compounded monthly (a) Calculate the unpaid balance of the loan at the beginning of the 7th year (b) Calculate the monthly payment for the 7th year without using the payment cap (c) Calculate the monthly payment for the 7th year using the payment cap (d) How much interest is due for the 73rd month? (e) Determine the unpaid balance at the end of the 73rd month CITED (a) The unpaid balance at the beginning of the 7th year is S (Round the final answer to the nearest cent as needed Round all intermediate values to six decimal places as needed)

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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Assume that a lender offers a 30-year, $148,000 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) 3 = 8.5 percent; (BOY) 4 = 9.5 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.
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