An ARM is made for $210,000 for 30 years with the following terms: Inltial interest rate =7 percent Index =1-year Treasuries Payments reset each year Margin =2 percent Interest rate cap= None Payment cap =5 percent increase in any year Discount points =2 percent Fully amortizing: however, negative amortization allowed if payment cap reached Based on estimated forward rates, the index to which the ARM is tied is forecasted as follows: Beginning of year ( 8OY ) 2 = 7 percent: (BOY) 3 = 8.5 percent: (BOM) 4=9.5 percent: (BOY)5 w 11 percent Required: a. Compute the payments and loan bolances for the ARM for the five-year period. b. Compute the yield for the ARM for the five-year period..

1. An ARM is made for $210,000 for 30 years with the following terms: Inltial interest rate =7
percent Index =1-year Treasuries Payments reset each year Margin =2 percent Interest rate cap=
None Payment cap =5 percent increase in any year Discount points =2 percent Fully amortizing:
however, negative amortization allowed if payment cap reached Based on estimated forward
rates, the index to which the ARM is tied is forecasted as follows: Beginning of year ( 8OY ) 2 =
7 percent: (BOY) 3 = 8.5 percent: (BOM) 4=9.5 percent: (BOY)5 w 11 percent Required: a.
Compute the payments and loan bolances for the ARM for the five-year period. b. Compute the
yield for the ARM for the five-year period.