Straight line assumption about future interest rates

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Consider the following fully-amortizing 5-year ARM (contract interest rate can change once every 60 months) with 15- year maturity, monthly payments. The ARM has initial interest rate 6.5% with 2 points; caps are 2% per jump, 5% lifetime, the margin is 300 basis points, the index is Treasury Bonds that are currently yielding 6.0%. The loan amount is 100,000. Under the “straight line” assumption about future interest rates (i.e., assuming the market rate on the index remains constant), what is the yield to maturity? (Show your work)

Reference no: EM132046344

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