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Suppose that you have decided to purchase a house for $400,000 using an adjustable-rate mortgage with the terms provided below.

Loan-to-value ratio: 90%

Index rate: one-year Treasury yield (currently 3.00%)

Margin: 250 basis points

Amortization: 15 years with monthly payments and compounding

Annual cap: 1.5 percentage points

Lifetime cap: 5 percentage points

Adjustment period: Annually

Teaser Rate 2.50%

1) What is the monthly payment during the first year of the loan?

2) If the yield on one-year Treasuries increases by 2.62% during the first year, what will your payment be during the second year of the loan?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92164694

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