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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

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

PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
6th Edition
ISBN:9781337117005
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
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Problem 5-8 Assume that a lender offers a 30-year, $142,000 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) 38.5 percent: (BOY) 49.5 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. Complete this question by entering your answers in the tabs below. Required A Required B Compute the payments and loan balances for the ARM for the five-year period. Note: Do not round intermediate calculations. Round "Payments to 2 decimal places and "Loan Balance" to the nearest dollar amount. Year 1 Year 2 Year 3 Year Loan Balance $ 10,650.00 $ 148.970 $10,428.00 S 156,371 $ 13,110 00 S 163,098 s 15.489.00 S 169.505
Transcribed Image Text:Problem 5-8 Assume that a lender offers a 30-year, $142,000 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) 38.5 percent: (BOY) 49.5 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. Complete this question by entering your answers in the tabs below. Required A Required B Compute the payments and loan balances for the ARM for the five-year period. Note: Do not round intermediate calculations. Round "Payments to 2 decimal places and "Loan Balance" to the nearest dollar amount. Year 1 Year 2 Year 3 Year Loan Balance $ 10,650.00 $ 148.970 $10,428.00 S 156,371 $ 13,110 00 S 163,098 s 15.489.00 S 169.505
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