Question: You are purchasing a house for $200,000 with a down payment of 20% and you have decided to use a 30-year adjustable-rate mortgage. The terms

You are purchasing a house for $200,000 with a down payment of 20% and you have decided to use a 30-year adjustable-rate mortgage. The terms of the mortgage are as follows: the interest rate is based on a 1-year treasury bill and interest rate is adjusted every year; the margin is 2.75%, and the annual interest rate cap is 2%. The initial mortgage interest rate is 5.375%.

Q1. What is the initial monthly payment?

Q2. What is the monthly payment if the interest rate on the treasury bill is 4% in the second year?

Q3. Determine the expected annual yield on this loan based on the above conditions.

Q4. What is the monthly payment if the interest rate on treasury bill is 5% in the second year?

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