Consider the Following 5-Year ARM Contract Interest Rate Can Change

question 18

Essay

Consider the following 5-year ARM contract interest rate can change once every 60 months) with 15-year maturity, monthly payments. The ARM has initial interest rate 6.5% with 2 points, caps are 2% per jump, 5% lifetime, margin is 300 basis points, index is Treasury Bonds that are currently yielding 6.0%. The loan amount is $100,000. Under the "straight line" assumption about future interest rates i.e., assuming the market rate on the index remains constant), what is the reported yield to maturity "APR", rounded to nearest 1/8 point)?

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Definitions:

Direct Labor Hours

The total hours worked by employees directly involved in the production process, used in costing and pricing decisions.