Homework Answers
Loan 3 is not an ARM because the % margin above index, adjustment interval and interest rate cap are given as N/A.
Loan 1 and Loan 2 are not unrestricted ARMs because they have an interest rate cap.
Loan 4 is an unrestricted ARM because it has no interest rate cap.
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Loan 1 Loan 2 Loan 3 Loan 4 Initial Interest Rate Loan Maturity (years) 20...
LOAN 1 LOAN 2 LOAN 3 LOAN 4 Initial Interest Rate ? ? ? ? Loan...
LOAN 1 LOAN 2 LOAN 3 LOAN 4 Initial Interest Rate ? ? ? ? Loan Maturity (years) 20 20 20 20 % Margin Above Index 2% — 3% 3% Adjustment Interval 1 yr. — 1 yr. 1 yr. Points 1% 1% 1% 1% Interest Rate Cap NONE — 1%/yr. 3%/yr. Which loan in the above table should have the lowest initial interest rate? Group of answer choices Loan 2 Loan 3 Loan 4 Loan 1
2. An ARM is made for $50,000 for 30 years with the following terms Initial interest...
2. An ARM is made for $50,000 for 30 years with the following terms Initial interest rate 1 percent Paymen Interest rate cap -none Discount points point Negative amortization is not allowed Index 1-year Treasuries Margin 200 basis points ts reset each year Payment cap-none Based on estimated forward rates, the 1-year Treasury yields to which the ARM is tied is forecasted as follows: Beginning of year (BOY) 2-one percent (1%); (BOY) 3-two percent (2%); (BOY) 4-35%; (BOY) 5-5% Compute...
A basic ARM is made for $500, 000 at an initial interest rate of 3% with...
A basic ARM is made for $500, 000 at an initial interest rate of 3% with 2 discount points for 10 years. Payments are to be reset each year. The borrower believes that the interest rate at the beginning of year 2 will increase to 9 percent. Assuming that fulling amortizing is made and negative amortization is allowed if payment cap reached. If the ARM loan has a maximum 5% annual increase payment cap, what is the expected yield to...
Suppose that you are thinking about taking out an adjustable rate loan (ARM) with the following...
Suppose that you are thinking about taking out an adjustable rate loan (ARM) with the following information: Teaser Rate: 3.5% Margin: 4.0% Year 1 TSY Strip Index: 2.0% Year 2 TSY Strip Index: 3.5% Year 3 TSY Strip Index: 1.5% Periodic Cap: 1.0% Lifetime Cap: 5.0% Caps are NOT based off of the Teaser A)What is the interest rate in the 1st year of the loan? 3.5% 5.5% 6.0% 7.5% None of the above B)What is the interest rate...
it is very important that you show your work from the calculations (right down what you used as PV, i FV, n, cash flows,...
it is very important that you show your work from the
calculations (right down what you used as PV, i FV, n, cash
flows,.....etc. in your calculation)
a. Given the following information, which ARM should have the lowest initial interest rate? ARMI ARM2 ARM3 % Margin above index 3% 2% 3% Adjustment Interval 6 months 1 year lyear Interest Rate Cap None 1% per year None (The three ARMs are identical in all other aspects) Briefly explain your answer! (2points)
Molly Swift has been analyzing different adjustable rate mortgage (ARM) alternatives for the purchase anew home....
Molly Swift has been analyzing different adjustable rate mortgage (ARM) alternatives for the purchase anew home. She anticipates owning the home for six years. The lender offers Ms. Swift a $150,000, 30 year ARM with the following terms: Initial interest rate 7.5 percent Index 1 year Treasuries Payments adjusted each year Margin-3 percent Interest rate cap-2 % annually/6 % lifetime Payment cap - none Negative amortization- No Discount points-2 percent Based on estimated forward rates computed from the yield curve...
Question two Consider a loan of USD 60,000 with a term of 25 years payable monthly....
Question two Consider a loan of USD 60,000 with a term of 25 years payable monthly. 1 initial interest rate is 8%, we assume that the ARM interest rate will be adjusted annually. Hence the first adjustment will occur at the beginning of the second year At that time the composite rate will be determined by the index of one Treasury security, plus 2% margin. Assume (1) that the index of one year US treasury securities takes on a pattern...
Suppose you need to finance $95,000 for the purchase of a home, and you’re deciding between...
Suppose you need to finance $95,000 for the purchase of a home, and you’re deciding between a conventional 30-year mortgage loan at 5 percent and an ARM at an initial rate of 3 percent, an annual interest rate cap of 1 percentage point, and a lifetime cap of 4 percentage points. Collapse question part (a) Calculate the mortgage payment for the conventional loan (30-year at 5 percent). (Round answer to 0 decimal places, e.g. 5,275.)
2 5. What is the rate of interest on a 1 year loan starting 3 years...
2 5. What is the rate of interest on a 1 year loan starting 3 years from now, implied by the following term structure: (i) A 1-year zero coupon bond has a yield to maturity of 1%, (ii) A 2-year zero coupon bond has a yield to maturity of 2%, (iii) A 3 year zero coupon bond has a yield to maturity of 3%, (iv) A 4-year zero coupon bond has a yield to maturity of 4% a. 1% b....
Assume that a lender offers a 30-year, $150,000 adjustable rate mortgage (ARM) with the following terms:...
Assume that a lender offers a 30-year, $150,000 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...
2. An ARM is made for $50,000 for 30 years with the following terms Initial interest rate 1 percent Paymen Interest rate cap -none Discount points point Negative amortization is not allowed Index 1-year Treasuries Margin 200 basis points ts reset each year Payment cap-none Based on estimated forward rates, the 1-year Treasury yields to which the ARM is tied is forecasted as follows: Beginning of year (BOY) 2-one percent (1%); (BOY) 3-two percent (2%); (BOY) 4-35%; (BOY) 5-5% Compute...
it is very important that you show your work from the
calculations (right down what you used as PV, i FV, n, cash
flows,.....etc. in your calculation)
a. Given the following information, which ARM should have the lowest initial interest rate? ARMI ARM2 ARM3 % Margin above index 3% 2% 3% Adjustment Interval 6 months 1 year lyear Interest Rate Cap None 1% per year None (The three ARMs are identical in all other aspects) Briefly explain your answer! (2points)
Molly Swift has been analyzing different adjustable rate mortgage (ARM) alternatives for the purchase anew home. She anticipates owning the home for six years. The lender offers Ms. Swift a $150,000, 30 year ARM with the following terms: Initial interest rate 7.5 percent Index 1 year Treasuries Payments adjusted each year Margin-3 percent Interest rate cap-2 % annually/6 % lifetime Payment cap - none Negative amortization- No Discount points-2 percent Based on estimated forward rates computed from the yield curve...
Question two Consider a loan of USD 60,000 with a term of 25 years payable monthly. 1 initial interest rate is 8%, we assume that the ARM interest rate will be adjusted annually. Hence the first adjustment will occur at the beginning of the second year At that time the composite rate will be determined by the index of one Treasury security, plus 2% margin. Assume (1) that the index of one year US treasury securities takes on a pattern...
2 5. What is the rate of interest on a 1 year loan starting 3 years from now, implied by the following term structure: (i) A 1-year zero coupon bond has a yield to maturity of 1%, (ii) A 2-year zero coupon bond has a yield to maturity of 2%, (iii) A 3 year zero coupon bond has a yield to maturity of 3%, (iv) A 4-year zero coupon bond has a yield to maturity of 4% a. 1% b....
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