Please answer the question and give the procss of calculation An adjustable rate
ID: 2561963 • Letter: P
Question
Please answer the question and give the procss of calculation
An adjustable rate mortgage with a teaser start rate of 3.5%, an index of the 11th District COFI rate, a margin of
1.5%, and periodic and lifetime caps of 1/5 with semi-annual adjustments, would have a maximum interest rate
of what at the beginning of the fourth loan year if the 11th District COFI rate is 7.5% at that time?
a) 8.5%
b) 9.0%
c) 10.5%
d) 11.0%
An adjustable rate mortgage with a teaser start rate of 1.5%, an index of the 11th District COFI rate, a margin of
2.5%, and periodic and lifetime caps of 1/5 with semi-annual adjustments, would have a maximum interest rate
of what at the beginning of the fourth loan year if the 11th District COFI rate is 7.0% at that time?
a) 5.5%
b) 6.5%
c) 8.5%
d) 9.5%
An adjustable rate mortgage with a teaser start rate of 1.5%, an index of the 11th District COFI rate, a margin of 2.0%, and periodic and lifetime caps of 2/6 with semi-annual adjustments, would have a maximum interest rate of what at the beginning of the fourth loan year if the 11th District COFI rate is 6.5% at that time?
a) 5.5%
b) 6.5%
c) 7.5%
d) 8.5%
Explanation / Answer
A Choice b) 9.0% is correct, because rate of interest qill be lower of 10.45 % and 9% 1/5 or .2 semi annual increase Semi Annual Period Semi Annual Increase Int. rate 1 0 5.00 2 0.2 6.00 3 0.2 7.20 4 0.2 8.64 5 0.2 10.37 6 0.2 12.44 7 0.2 14.93 or 7.5+1.5 9.00 B Choice d) 9.5% is correct, because rate of interest will be lower of 11.94 % and 9.5% 1/5 or .2 semi annual increase Semi Annual Period Semi Annual Increase Int. rate 1 0 4.00 2 0.2 4.80 3 0.2 5.76 4 0.2 6.91 5 0.2 8.29 6 0.2 9.95 7 0.2 11.94 or 7.0+2.5 9.50 C Choice d) 8.5% is correct, because rate of interest will be lower of 10.45 % and 8.5% 1/5 or .2 semi annual increase Semi Annual Period Semi Annual Increase Int. rate 1 0 3.50 2 0.2 4.20 3 0.2 5.04 4 0.2 6.05 5 0.2 7.26 6 0.2 8.71 7 0.2 10.45 or 6.5+2.0 8.50