24 Work this problem: Assume that a lender offers a 20-yea…
24 Work this problem: Assume that a lender offers a 20-year, $175,000 adjustable-rate mortgage (ARM) with the following terms: Initial interest rate = 8 percent Index = 1-year Treasuries Payments reset each year Margin = 1.5 percent Interest rate cap = 1 percent annually; 3 percent lifetime Discount points = 2 percent Negative amortization allowed 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; Compute the payments, loan balances, and yield for the ARM for the three-year period. A. Year one payment; Loan balance B. Year two payment; Loan balance C. Year three payment; Loan balance D. What is the yield if the loan is repaid after 3 years