Problem 3: (5 points) Assume that a lender offers a 30-year, $150,000 adjustable rate mortgage (ARM 1/29) with the following terms: Initial interest rate-7.5 percent; Index = 1-year Treasuries; Payments reset each year; Margin-2 percent Payment cap 5 percent; Interest rate cap 1 percent annually and 2 percent lifetime; Discount points 2 percent Fully amortizing; however, negative amortization allowed if payment caps 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- 8.5 percent; BOY 4 6 percent; BOY 5-7 percent. Please fill in the following tables. As for steps, please provide concise steps for year 1 through 3, and Please provide concise steps and also use sentences to explain your rationale for year 4.(1 point for each year, 1 point for explanation of year 4) Year BOY Balance EOY Balance Steps Problem 3: (5 points) Assume that a lender offers a 30-year, $150,000 adjustable rate mortgage (ARM 1/29) with the following terms: Initial interest rate-7.5 percent; Index = 1-year Treasuries; Payments reset each year; Margin-2 percent Payment cap 5 percent; Interest rate cap 1 percent annually and 2 percent lifetime; Discount points 2 percent Fully amortizing; however, negative amortization allowed if payment caps 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- 8.5 percent; BOY 4 6 percent; BOY 5-7 percent. Please fill in the following tables. As for steps, please provide concise steps for year 1 through 3, and Please provide concise steps and also use sentences to explain your rationale for year 4.(1 point for each year, 1 point for explanation of year 4) Year BOY Balance EOY Balance Steps