An ARM is made for $$175,000$ for $30$ years with the following

terms:

Initial interest rate $=7$ percent

Index $=1-$year Treasuries

Payments reset each year

Margin $=2$ percent

Interest rate cap $=$ None

Payment cap $=5$ percent increase in any year

Discount points $=2$ percent

Fully amortizing; however, negative amortization allowed if

payment cap reached

Based on estimated forward rates, the index to which the ARM is

tied is forecasted as follows: Beginning of year $($BOY$)2=7$

percent; BOY $3=8\mathrm{.}5$ percent; BOY $4=9\mathrm{.}5$ percent; BOY $5=11$

percent.

Required:

a$.$ Compute the payments and loan balances for the ARM for

the five$-$year period.

b$.$ Compute the yield for the ARM for the five$-$year period.