Question

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 based on the forward rates in existence at the time each ARM is originated, and (2) that monthly payment interest rate adjustments aire made annually. Assume that the maximum rate with which payment may increase annually is 8%. year US of 10, 12, and 14% for the next three years Required a) Compute the PMT for the first four years b) Compute the loan balances at the end of each of the first four years (is marks)