1. A PLAM is made with the following terms, to be adjusted by the CPI after year 1: Amount = $125,000 Initial Interest Rate: 5% Term = 30 years CPI during year 1 = 8% (increase) What is the balance at the end of the first year?
2. Which of the following statements is NOT true concerning ARMs? ARMs do not eliminate losses for the lender Everyone is affected by interest rate risk The interest rate risk incurred by both lender and borrower is determiend by the index chosen and the frequency of payment adjustments The longer the adjustment period, the greater the risk to the borrower.