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A borrower has been analyzing different adjustable rate mortgage (ARM) alternatives for the purchase of a property. The borrower anticipates owning the property for five years. The lender first offers a $157,000, 30-year fully amortizing ARM with the following terms:
Initial interest rate = 6 percentIndex = 1-year TreasuriesPayments reset each yearMargin = 2 percentInterest rate cap = NonePayment cap = NoneNegative amortization = Not allowedDiscount points = 2 percent
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 unrestricted ARM for the five-year period.
b. Compute the yield for the unrestricted ARM for the five-year period.
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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