Chapter 14, Problem 12AT

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8th Edition

Robert Brechner + 1 other

ISBN: 9781305585447

Textbook Problem

Dale Evans bought the Lazy D Ranch with an adjustable-rate mortgage. The lender's margin on the loan is 3.9%, and the overall rate cap is 6% over the life of the loan.

a. If the current index rate is 4.45%, what is the calculated interest rate of the ARM?

b. What is the maximum overall rate of Dale's loan?

**(a)**

To determine

**To calculate:** The interest rate of the ARM (Adjustable Rate Mortgage) when the lender’s margin on the loan is

Explanation

**Given Information:**

The lender’s margin on the loan is

**Formula used:**

The formula for the interest rate of the ARM (Adjustable Rate Mortgage) is,

**Calculation:**

Consider the provided values,

**(b)**

To determine

**To calculate:** The maximum overall rate of loan when the lender’s margin on the loan is

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