an adjustable rate mortgage (ARM) of $190,000 with a maturity of 30 years and monthly payments. At the end of each year, the interest rate is adjusted to become 2.5 percentage points above the index. There is an annual cap of 250 basis points, and a lifetime cap of 500 basis points (i.e., with 2.5/5 interest rate caps). The lender offers a teaser of 1.00% for the first year. The following are the current and index rates: Time At origination (for yr 1) At end of yr 1 (for yr 2) At end of yr 2 (for yr 3) At end of vr 3 (for yr 4) T-Bill Yield (given) 4.50% 7.00% 9.00% 5.00%

an adjustable rate mortgage (ARM) of $190,000 with a maturity of 30 years and monthly payments. At the end of each year, the interest rate is adjusted to become 2.5 percentage points above the index. There is an annual cap of 250 basis points, and a lifetime cap of 500 basis points (i.e., with 2.5/5 interest rate caps). The lender offers a teaser of 1.00% for the first year. The following are the current and index rates: Time At origination (for yr 1) At end of yr 1 (for yr 2) At end of yr 2 (for yr 3) At end of vr 3 (for yr 4) T-Bill Yield (given) 4.50% 7.00% 9.00% 5.00%

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 14P

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Consider an adjustable rate mortgage (ARM) of $190,000 with a maturity of 30 years and monthly payments. At the end of each year, the interest rate is adjusted to become 2.5 percentage points above the index. There is an annual cap of 250 basis points, and a lifetime cap of 500 basis points (i.e., with 2.5/5 interest rate caps). The lender offers a teaser of 1.00% for the first year. The following are the current and index rates: Time T-Bill Yield (given) At origination (for yr 1) 4.50% At end of yr 1 (for yr 2) 7.00% At end of yr 2 (for yr 3) 9.00% At end of yr 3 (for yr 4) 5.00% At end of yr 4 (for yr 3) 8.00% # 1). What is the contract rate for years 1, 2, 3, and 4? O 3.50%, 4.00%, 8.00%, 5.00% 4.50%, 6.00%, 10.00%, 7.00% 6.00%, 8.50%, 11.00%, 7.00% O 6.50%, 9.00%, 10.00%, 7.00% O 6.00%, 9.00%, 10.00%, 7.00% O 5.50%, 6.00%, 9.00%, 7.00%
Consider an adjustable rate mortgage (ARM) of $190,000 with a maturity of 30 years and monthly payments. At the end of each year, the interest rate is adjusted to become 2.5 percentage points above the index. There is an annual cap of 250 basis points, and a lifetime cap of 500 basis points (i.e., with 2.5/5 interest rate caps). The lender offers a teaser of 1.00% for the first year. The following are the current and index rates: Time At origination (for yr 1) At end of yr 1 (for yr 2) At end of yr 2 (for yr 3) At end of yr 3 (for yr 4) 9.55% 11.25% 10.25% 13.15% At end of yr 4 (for yr 5) #6). Assume that the mortgage has a 5 percent prepayment penalty for the loan balance when prepaid. What is the effective annual cost of the mortgage if is prepaid at the end of year 2? 8.75% T-Bill Yield (given) 14.85 % 4.50% 7.00% 9.00% 5.00% 8.00%
Consider an adjustable rate mortgage (ARM) of $190,000 with a maturity of 30 years and monthly payments. At the end of each year, the interest rate is adjusted to become 2.5 percentage points above the index. There is an annual cap of 250 basis points, and a lifetime cap of 500 basis points (i.e., with 2.5/5 interest rate caps). The lender offers a teaser of 1.00 % for the first year. The following are the current and index rates: Time T-Bill Yield (given) At origination (for yr 1) 4.50% At end of yr 1 (for yr 2) 7.00% At end of yr 2 (for yr 3) 9.00% At end of yr 3 (for yr 4) 5.00% At end of yr 4 (for yr 5) 8.00% # 6). Assume that the mortgage has a 5 percent prepayment penalty for the loan balance when prepaid. What is the effective annual cost of the mortgage if is prepaid at the end of year 2? 8.75% 14.85% 9.55% 10.25% 11.25% O 13.15%
Consider an adjustable rate mortgage (ARM) of $195,000 with a maturity of 30 years and monthly payments. At the end of each year, the interest rate is adjusted to become 2.5 percentage points above the index. There is an annual cap of 250 basis points, and a lifetime cap of 500 basis points (i.e., with 2.5/5 interest rate caps). The lender offers a teaser of 2.00% for the first year. The following are the current and index rates: Time At origination (for yr 1) At end of yr 1 (for yr 2) At end of yr 2 (for yr 3) At end of yr 3 (for yr 4) At end of yr 4 (for yr 5) O 3.27 points O 4.67 points O 1.98 points 5.07 points O 3.97 points T-Bill Yield (given) O 2.42 points 4.50% #5). If the loan is repaid at the end of year two (2), what amount of discount points should the lender have charged to earn an effective yield of 9%? Choose the BEST answer 8.50% 9.00% 5.00% 8.00%
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You take out a 30-year mortgage, at a nominal annual rate of X%, with monthly compounding. Each month, you make exactly the required payment. Consider the following table of data from the amortization schedule: Month N N + 1 O 3.15 %- 3.05% 3.35% O 3.45% Beginning Balance 3.25% Payment $1,289.21 Based on this information, what is the nominal annual interest rate (with monthly compounding) for this mortgage? Interest Principal Ending Balance $215.249.20 $214.525.02
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A price level adjusted mortgage (PLAM) is made with the following terms: Amount = $96,000Initial interest rate = 4 percentTerm = 30 yearsPoints = 6 percent Payments to be reset at the beginning of each year. Assuming inflation is expected to increase at the rate of 6 percent per year for the next five years: b. What is the loan balance at the end of the fifth year?c. What is the yield to the lender on such a mortgage? I am having trouble with b. and c.
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