Question: Suppose you are considering a PLAM with the following characteristics: Mortgage Amount = $175,000 30-Year Term Monthly Payments Current Real Rate = 5.50 percent Expected

Suppose you are considering a PLAM with the following characteristics: Mortgage Amount = $175,000 30-Year Term Monthly Payments Current Real Rate = 5.50 percent Expected Inflation Rates: EOY1 = 3%, EOY2 = - 2%, EOY3 thru EOY30 = 0% Annual Payment Adjustments

A. What is the APR of this loan? Answer:__________

B. What is the effective cost if the loan is repaid at the end of year 2? Answer:__________

C. Suppose that, instead of repaying the loan, you continue to make the payments and your monthly payment in year 4 is 1,043.09. What was the inflation rate for year 3? Answer:__________

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To solve these problems well need to handle several parts related to a Price Level Adjusted Mortgage PLAM The steps for each question are as follows Part A Calculating the APR 1 Understanding PLAM PLA... View full answer

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