NEEDS TO BE DONE IN EXCEL WITH CALCULATIONS. An ARM for 100,000 is made at the...

NEEDS TO BE DONE IN EXCEL WITH CALCULATIONS.

An ARM for 100,000 is made at the time when the expected start rate is 5 percent. The Loan will be made with a teaser rate of 2 percent for the first year, after which the rate will be reset. The loan is fully amortizing, has a maturity of 25 years, and payments will be made monthly.

a. What will be the payments during the first year?

b. Assuming that the reset rate is 6 percent at the beginning of year (BOY) 2, what will the payments be?

c. By what percentage will the monthly payments increase?

d. What if the reset date is three years after loan origination and the reset rate is 6 percent, what will the loan payments be beginning in year 4 through year 25?

Expert Solution

We can calculate the desired result in excel sheet as follows:

Formulas used in the excel sheet are:

Hope I am able to solve your concern. If you are satisfied hit a thumbs up !!

jeff jeffy answered 1 year ago

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