Consider a one year, $$150,000$ ARM with a $30$ year amortization period. The index rate to which the mortgage rate is tied is currently $3\mathrm{.}75$ percent, and you estimate that it will increase by $25bp(0\mathrm{.}25\%)$ each year for the following $2$ years. The fixed margin is $225bp(225\%),$ but the lender is offering a teaser rate of $5$ percent for the first year of the mortgage

Required:

a$.$ Calculate the contract rate, remaining loan balance, and monthly payment for each of the three years.

b$.$ Suppose that the ARM has a $1$ percent annual adjustment cap based on the initial teaser rate and a $6$ percent overall cap. What is the loan balance and monthly payment for each of the three years? Assume the rate cap applies to the teaser rate:

Answer is complete but not entirely correct.

Complete this question by entering your answers in the tabs below.

Required A

Required B

Calculate the contract rate, remaining loan balance, and monthly payment for each of the three years.

Note: Do not round intermediate calculations. Round your "Contract rate" and "Loan balance" answers to $2$ decimal places and "Monthly payment" answers to $3$ decimal places.

$\backslash$table$[[,$Beginning of Year$],[,,$Year $1,$Year $2,,$Year $3],[$Contract rate,,$5\mathrm{.}000,6\mathrm{.}250,,6\mathrm{.}500],[$Loan balance,$$,150,000\mathrm{.}00,147,786\mathrm{.}960,$$$,145,921\mathrm{.}950$