You are looking to finance your home the bank is offering a, Financial Management

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You are looking to finance your home the bank is offering a

You are looking to finance your home. The bank is offering a three-year ARM (adjustable-rate mortgage) with an introductory rate of 3.90%. It has a 3.00% adjustment cap per adjustment period, a lifetime adjustment of 7.00%. The rate is 4.00% over the one-year LIBOR rate, which is currently 1.50%.

a. What will your interest rate be after three years if the LIBOR rate does not change?

b. In three years, what it the maximum interest rate you could be charged?

c. If the LIBOR increases 1.25% per year for the next 10 years, up to 14.00%, what is the maximum interest rate you will pay?

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