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You are considering an ARM with the following characteristics:

Mortgage amount = $200,000

2/6 Interest rate caps

Margin = 2.50

Index = 1 year TB yield

Term = 30 years

One-year adjustable Monthly Payments Discount points = 2.00

Initial Teaser Rate = 3.50%

Prepayment penalty = 4% for the All subsequent adjustments first three years

A. If the TB yield is 3.75% at the outset, what is the monthly payment for year one?

B. If the TB yield goes from 3.75% to 4.75% at the end of year one, what is the monthly payment for year two?

C. If the loan is repaid at the end of year two, what is the effective cost?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92696418

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