Ef 592. Given the following Adjustable Rate Mortgage (ARM):Loan amount:$100,000Term:20 years, monthly paymentDiscount point and fee: $8,000Teaser rate:7.25%Margin:225 basis pointsRate caps:2.5% annually, 6% lifetimeEOY 1Market Index:Index 8.6%O 12.13%13.92%10.68%29.5%What is the effective cost of this loan if you pay it off at the end of year 2?13.06%310.5%11.5%510.5%

The effective cost of an Adjustable Rate Mortgage (ARM) if it is paid off at the end of year 2. An…

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What is the effective cost of this loan if you pay it off at the end of year 2?

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter7: Using Consumer Loans

Section: Chapter Questions

Problem 4FPE: Calculating single-payment loan amount due at maturity. Stanley Price plans to borrow 8,000 for five...

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Concept explainers

Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.

Question

Ef 592.

Given the following Adjustable Rate Mortgage (ARM):
Loan amount:
$100,000
Term:
20 years, monthly payment
Discount point and fee: $8,000
Teaser rate:
7.25%
Margin:
225 basis points
Rate caps:
2.5% annually, 6% lifetime
EOY 1
Market Index:
Index 8.6%
O 12.13%
13.92%
10.68%
2
9.5%
What is the effective cost of this loan if you pay it off at the end of year 2?
13.06%
3
10.5%
11.5%
5
10.5%

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