Question: An interest only ARM is made for $200,000 for 30 years. The starting interest rate is 5% per year compounded monthly. (1) For the first

An interest only ARM is made for $200,000 for 30 years. The starting interest rate is 5% per year compounded monthly. (1) For the first 3 years, the borrower has an interest-only loan; (2) for the remainder of the loan monthly payments will be sufficient to fully amortize the loan at maturity, given a 6% annual interest rate (note that the interest rate has reset).

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