A 3/1 ARM is made for $150,000 at 7% with a 30 year maturity. Assuming that fixed payments are to be made monthly for three year
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The amount that will be received by Terry at the end of every year for 10 years is $<u>3,803.97</u>
Computations:
1. First the future value will be computed:
Given,
=$308, Annuity or the quarterly payment amount.
=1.5%, the rate of interest to be paid quarterly; thus the effective rate of interest will be: 0.375%
= 20 years, number of periodic payments, but the effective time period for the computation will be 80 payments that are:
2. From the determined future value that will be used in the present value formula, where 5.5% interest compounded at which Terry will receive an amount for every 10 years will be computed.
Given,
Present value =$28,672.88
=5.5%, the coumpounded rate of interest
=10 years
Therefore, after the payment of $308 for 20 years, Terry will start receiving the amount of $3,803.97 every 10 years.
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