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You have taken out a 3/1 ARM (the teaser rate is locked for the first...

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Accounting

You have taken out a 3/1 ARM (the teaser rate is locked for the first 3 years, and after this 3-year initial period, interest rate begins to adjust per year) with the following loan terms: Loan amount: $300,000 Annual rate cap: 2% Lifetime cap: 7% Margin: 300 bps (3%) Teaser rate (annual): 5% Loan term in years: 15 years Monthly payment over the first 3 years: $2,372.38 The remaining loan balance at the end of year 3: $256,504.00 The market index rate at the beginning of year 4: 4.25% Q: What is the annual interest rate for year 4? Group of answer choices A. 5.00% B. 7.25% C. 7.00% D. 6.25% E. No answer within +/- 0.1% of the correct one

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