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Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

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BuyFindarrow_forward

Contemporary Mathematics for Busin...

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 3.9%, the overall rate cap is 6% over the life of the loan and the current index is 4.45%.

Explanation

Given Information:

The lender’s margin on the loan is 3.9%, the overall rate cap is 6% over the life of the loan and the current index is 4.45%.

Formula used:

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

ARM (Adjustable Rate Mortgage)=Index rate+Lender's Margin

Calculation:

Consider the provided values,

Lender’s margin on the loan=3

(b)

To determine

To calculate: The maximum overall rate of loan when the lender’s margin on the loan is 3.9%, the overall rate cap is 6% over the life of the loan and the current index is 4.45%.

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