An adjustable rate mortgage (ARM) loan is made for $150,000 for 30 years with the following terms:

Compounding frequency = monthly

Initial interest rate = 5% per year

Index = 1-year government bond rate

Payments reset each year

Margin = 2% Interest rate cap = none

Payment cap = 20% increase in any year

Discount points = 2% Fully amortising loan, and negative amortisation is allowed if payment cap is reached.

Based on estimated forward rates, the index (1-year government bond rate) to which the ARM is tied is forecasted to be 6% at the beginning of year 2 (coinciding with the loan payment reset).

Calculate yield of the ARM for the first 2-year period of the loan?