Compute the payments and loan balances for the arm

Assignment Help Finance Basics
Reference no: EM133113060

Assume that a lender offers a 30-year, $140,000 adjustable rate mortgage (ARM) with the following terms:

Initial interest rate = 7.5 percent
Index = one-year Treasuries
Payments reset each year
Margin = 2 percent
Interest rate cap = 1 percent annually; 3 percent lifetime
Discount points = 2 percent

Fully amortizing; however, negative amortization allowed if interest rate caps reached

Based on estimated forward rates, the index to which the ARM is tied is forecasted as follows: Beginning of year (BOY) 2 = 7 percent; (BOY) 3 = 8.5 percent; (BOY) 4 = 9.5 percent; (BOY) 5 = 11 percent.

Required:

a. Compute the payments and loan balances for the ARM for the five-year period.

b. Compute the yield for the ARM for the five-year period.

Reference no: EM133113060

Questions Cloud

Project pay back on a discounted basis : A project costs $900 and has cash flows of $500 at the end of the first year, $600 at the end of the second year and $700 at the end of the third year. If the r
Calculate the effective rent to the owner : A property owner is evaluating the following alternatives for leasing space in his office building for the next five years:
What will the monthly payments be : An "interest only" mortgage is made for $85,000 at 6 percent interest for 10 years. The lender and borrower agree that monthly payments will be constant and wil
Cyber espionage has become common in the last decade : Cyber espionage has become common in the last decade. Can you name at least two cyber-espionage incidents that occurred in 2020-2021?
Compute the payments and loan balances for the arm : Assume that a lender offers a 30-year, $140,000 adjustable rate mortgage (ARM) with the following terms:
Asset allocation policy for john : Propose and discuss extensively an asset allocation policy for John. Consider the following asset classes; money market highly liquid investment, cyclical stock
Seizure law as applies to digital crime : Explain the intent and fundamental concepts of search and seizure law as it applies to digital crime.
What is jamie net worth : Jamie Mcfarland has determined that the value of her liquid assets is $4,100, the value of her real estate is $129,000, What is Jamie net worth
What should the profit margin be : The Tac company wishes to maintain a growth rate of 10% per year and a debt / equity ratio of 0.5. The dividend payout rate is 0.2 and the ratio of total assets

Reviews

Write a Review

Finance Basics Questions & Answers

  Eight sections of the investopedia investing

Take notes on all eight sections of the Investopedia Investing 101: A tutorial for Beginner investors

  Extend credit to a group of new customers

Firm Z is evaluating a proposal to extend credit to a group of new customers. The new customers will generate an average of $90,000 per day in new sales.

  What is the value of a bond that has a par value

What is the value of a bond that has a par value of $1,000, a coupon rate of 7.16 percent (paid annually), and that matures in 4 years?

  Flexible budget as compared to a forecast budget

When would it make sense to use a flexible budget as compared to a forecast budget?

  Discuss three commonalities between stocks and bonds

Discuss three commonalities between stocks and bonds. Discuss three differences. If you were a business owner

  Cash dividends or stock dividends

Discuss your preference for either cash dividends or stock dividends, and support your position with real-life examples of the advantage of your preference.

  How far can walmart stock rise before you get a margin call

Suppose that your broker requires a minimum maintenance margin of 25%. How far can Walmart stock rise before you get a margin call?

  What must lisa annual deposit be

Lisa Simpson wants to have $1,500,000 in 40 years by making equal annual end-of-the-year deposits into a tax-deferred account paying 9.50 percent annually. What must Lisa's annual deposit be?

  Loan in ten equal annual instalments

You are interested in taking out a loan of $30,000 from your local bank. The bank charges you an interest rate of 5% per year, and you would like to repay

  Compute the required minimum distribution

Compute the required minimum distribution for jason.

  What is the firms break-even point in sales swedish crowns

Imagine that you were a new CFO of Beily Inc., a children's bicycle manufacturer. The president, Mr. Zhao, started the business 2 years ago.

  Risky asset depends on three components

1. Define liquidity risk, default risk and taxability risk, and explain how these risks relate to bonds and bond yields. 2. According to CAPM the expected return on a risky asset depends on three components. Name and describe each component explain..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd