2. Using tab 2 in the template, create the amortization spreadsheet and answer the following questions for a $700,000 10-year adjustable-rate mortgage (ARM) loan that is fully-amortizing and has monthly payments. A teaser rate of 4.4% applies to the mortgage payments and amortization during the first 2 years of the loan. After the second , the annual interest rate on the loan is equal to the going rate on an index + a margin of 2.7%, subject to an annual interest rate cap of 2.5% and a lifetime interest rate cap of 5.8% over the initial teaser rate. Expectations for the beginning-of-year values for the appropriate index are as follows: year, Year Index 3451 3.1% 4.7% 6.5% 6 2.5% 7 2.9% 8 5.1% 9 6.6% 10 6.0% a) Based on these expectations and conditions, what would be the actual (contract) interest rates applied to the mortgage payment during years 1 through 10? b) What would be the APR on this loan, if held until maturity – assuming up-front points of 2.0%? c) What is the outstanding balance at the end of year 6?
2. Using tab 2 in the template, create the amortization spreadsheet and answer the following questions for a $700,000 10-year adjustable-rate mortgage (ARM) loan that is fully-amortizing and has monthly payments. A teaser rate of 4.4% applies to the mortgage payments and amortization during the first 2 years of the loan. After the second , the annual interest rate on the loan is equal to the going rate on an index + a margin of 2.7%, subject to an annual interest rate cap of 2.5% and a lifetime interest rate cap of 5.8% over the initial teaser rate. Expectations for the beginning-of-year values for the appropriate index are as follows: year, Year Index 3451 3.1% 4.7% 6.5% 6 2.5% 7 2.9% 8 5.1% 9 6.6% 10 6.0% a) Based on these expectations and conditions, what would be the actual (contract) interest rates applied to the mortgage payment during years 1 through 10? b) What would be the APR on this loan, if held until maturity – assuming up-front points of 2.0%? c) What is the outstanding balance at the end of year 6?
Chapter4: Time Value Of Money
Section4.17: Amortized Loans
Problem 1ST
Question
![2. Using tab 2 in the template, create the amortization spreadsheet and answer the
following questions for a $700,000 10-year adjustable-rate mortgage (ARM) loan that is
fully-amortizing and has monthly payments. A teaser rate of 4.4% applies to the
mortgage payments and amortization during the first 2 years of the loan. After the second
, the annual interest rate on the loan is equal to the going rate on an index + a margin
of 2.7%, subject to an annual interest rate cap of 2.5% and a lifetime interest rate cap of
5.8% over the initial teaser rate. Expectations for the beginning-of-year values for the
appropriate index are as follows:
year,
Year
Index
3451
3.1%
4.7%
6.5%
6
2.5%
7
2.9%
8
5.1%
9
6.6%
10
6.0%
a) Based on these expectations and conditions, what would be the actual (contract)
interest rates applied to the mortgage payment during years 1 through 10?
b) What would be the APR on this loan, if held until maturity – assuming up-front points
of 2.0%?
c) What is the outstanding balance at the end of year 6?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbbcce27e-8efe-494e-925c-1e27a7a6f2c6%2Fadf6091c-589b-44eb-aa43-c49c8a78f610%2Faw8972_processed.png&w=3840&q=75)
Transcribed Image Text:2. Using tab 2 in the template, create the amortization spreadsheet and answer the
following questions for a $700,000 10-year adjustable-rate mortgage (ARM) loan that is
fully-amortizing and has monthly payments. A teaser rate of 4.4% applies to the
mortgage payments and amortization during the first 2 years of the loan. After the second
, the annual interest rate on the loan is equal to the going rate on an index + a margin
of 2.7%, subject to an annual interest rate cap of 2.5% and a lifetime interest rate cap of
5.8% over the initial teaser rate. Expectations for the beginning-of-year values for the
appropriate index are as follows:
year,
Year
Index
3451
3.1%
4.7%
6.5%
6
2.5%
7
2.9%
8
5.1%
9
6.6%
10
6.0%
a) Based on these expectations and conditions, what would be the actual (contract)
interest rates applied to the mortgage payment during years 1 through 10?
b) What would be the APR on this loan, if held until maturity – assuming up-front points
of 2.0%?
c) What is the outstanding balance at the end of year 6?
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