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An interest-only ARM is made for $203,000 for 30 years. The start rate is 5...

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Finance

An interest-only ARM is made for $203,000 for 30 years. The start rate is 5 percent and the borrower will make monthly interest-only payments for three years. Payments thereafter must be sufficient to fully amortize the loan at maturity.

Required:

a. If the borrower makes interest-only payments for three years, what will the payments be?

b. Assume that at the end of year 3, the reset rate is 6 percent. The borrower must now make payments so as to fully amortize the loan. What will the payments be?

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