Question $12$

$3\mathrm{.}3$ pts

An ARM loan, Loan Amount $=$$$250,000$; Monthly Payments, Index $=1-$ Year Treasury bill. Index at the end of year $1$ is $7\%.$ Index at the end of year $2$ is $6\mathrm{.}5\%.$ Index at the end of year $3$ is $8\mathrm{.}0\%.$ One Year Adjustable, Margin $=1\mathrm{.}50\%,$ Term $=30$ years. Interest Rate Caps: annual $2\%$ and life $5\mathrm{.}5\%,$ Teaser Rate $=5\%.$ The loan has negative amortization.

What is the effective cost for a $3-$year holding period?

$8\mathrm{.}15\%$

$8\mathrm{.}63\%$

$7\mathrm{.}58\%$

$7\mathrm{.}09\%$