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Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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
Transcribed Image Text:Problem 5
You have the following two mortgage choices:
Mortgage Amount
Term
The payment rises each year
Discounts Points
Costs with Loan Orignation
Fixed-rate Mortgage
$100,000
3 years with annual PMT
0
$1,000
2/1 Interest-only ARM
$100,000
3 years with annual PMT
0
$1,000
Initial Contract Interest Rate
11.00%
Margin
Caps
Market Index
Calculate APR for each mortgage choice?
10.00%
2.00%
no annual cap; 3% lifetime cap
End of Year (EOY) 1: 7.0%; EOY 2: 4.5%
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