If an ARM Index Increased 15%,the Negative Amortization on a Loan

question 17

Multiple Choice

If an ARM index increased 15%,the negative amortization on a loan with a 5% annual payment cap is calculated by:

• A)Using the same payment as last year and deducting 5% from the principal balance
• B)Increasing the payment by 5%
• C)Totaling the difference between the payments with the 5% capped payment
• D)Compounding the difference between the payments as if no cap existed and with the 5% capped payment

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Definitions:

Temperature

A measure of the thermal energy of a system, indicating how hot or cold the system is.

Pressure

The exertion of force upon a surface by an object, fluid, etc., in contact with it, measured in units such as Pascal (Pa).

Liters

A metric unit of volume equal to one cubic decimeter or 1000 cubic centimeters.

Mole

A unit of measurement in chemistry that quantifies the amount of a substance, specifically 6.022 x 10^23 particles of that substance.