Suppose that you are thinking about taking out an adjustable-rate loan (ARM) with the following information:

Teaser Rate: 3.5%

Margin: 4.0%

Year 1 TSY Strip Index: 2.0%

Year 2 TSY Strip Index: 3.5%

Year 3 TSY Strip Index: 1.5%

Periodic Cap: 1.0%

Lifetime Cap: 5.0%

Caps are NOT based off of the Teaser

Question 1- What is the interest rate in the 1st year of the loan?

Question 2- What is the interest rate in the 2^nd year of the loan?

Question 3- What is the maximum possible interest rate you will pay throughout the life of the loan?

*Please answer using Excel. and please answer all three questions*

Answer rating: 100% (QA)

To answer these questions using Excel we can use the following formulas ... View the full answer