Calculate the effective borrowing cost

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You would like to borrow 114,000 using an adjustable rate mortgage instrument with 15 year amortization schedule, 4.50% initial interest rate, 2% margin and 2% annual interest rate cap, Assume that the loan is indexed to the 1 year Treasury rate and that this index is expected to have a value of 5% at the end of the first year and 7.5% at the end of the second year. Your expected holding period is 3 years , calculate the effective borrowing cost.

Reference no: EM131923793

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