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A borrower has been analyzing different adjustable rate mortgage (ARM) alternatives for the purchase of...

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Accounting

A borrower has been analyzing different adjustable rate mortgage (ARM) alternatives for the purchase of a property. The borrower anticipates owning the property for five years. The lender first offers a $151,000,30-year fully amortizing ARM with the following terms:Initial interest rate =6 percentIndex =1-year TreasuriesPayments reset each yearMargin =2 percentInterest rate cap = NonePayment cap = NoneNegative amortization = Not allowedDiscount points =2 percentBased on estimated forward rates, the index to which the ARM is tied is forecasted as follows: Beginning of year (BOY)2=9 percent;(BOY 3=10.5 percent; (BOY)4=11.5 percent; (BOY)5=13 percent.Required:a. Compute the payments and loan balances for the unrestricted ARM for the five-year period.b. Compute the yield for the unrestricted ARM for the five-year period.

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