Assume that a lender offers a 30-year, $147,000 adjustable rate mortgage (ARM) with the following terms: Initial interest rate=7.5 percent Index = one-year Treasurles Payments reset each year Margin=2 percent Interest rate cap 1 percent annually, 3 percent lifetime Discount points=2 percent Fully amortizing; however, negative amortization allowed if interest rate caps reached Based on estimated forward rates, the index to which the ARM is tied is forecasted as follows: Beginning of year (BOM) 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.

Assume that a lender offers a 30-year, $147,000 adjustable rate mortgage (ARM) with the following terms: Initial interest rate=7.5 percent Index = one-year Treasurles Payments reset each year Margin=2 percent Interest rate cap 1 percent annually, 3 percent lifetime Discount points=2 percent Fully amortizing; however, negative amortization allowed if interest rate caps reached Based on estimated forward rates, the index to which the ARM is tied is forecasted as follows: Beginning of year (BOM) 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.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 17P

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Assume that a lender offers a 30-year, $150,000 adjustable-rate mortgage (ARM) with the following terms:Initial interest rate 7.5 percentIndex 1-year TreasuriesPayments reset each yearMargin 2 percentInterest rate cap 1 percent annually; 3 percent lifetimeDiscount points 2 percentFully amortizing; however, negative amortization allowed if interest rate caps reachedBased 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;(EOY) 5 11 percent.Compute the payments, loan balances, and yield for the ARM for the five-year period.
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