Suppose you have a 30-year ARM with an original loan balance of $125,000,monthly payment in year one of $874.02 and monthly payment in year two of $1003.36,and a contract rate in year two of 9%.If the loan is repaid at the end of year two,what amount of discount points should the lender have charged to earn an effective yield of 10.17%?

Question

Quizplus · Accepted Answer

To find the correct answer, we need to calculate the amount of discount points the lender should have charged to achieve an effective yield of 10.17% given the loan details. This involves complex financial calculations that consider the loan amount, payments made in the first two years, the interest rate in the second year, and the desired yield. The calculation would typically use the present value of the loan payments and the payoff amount at the end of year two to determine the initial loan amount that would yield a 10.17% return, then compare this to the original loan amount to find the required discount points. The correct answer, 3.51 points, indicates the percentage of the loan amount that should have been charged upfront to achieve the desired yield, considering the given loan parameters and payments.

Suppose You Have a 30-Year ARM with an Original Loan