FSU Compute the Payments Loan Balances and Yield For ARM For Five Year Period Question

I’m working on a real estate question and need an explanation and answer to help me learn.

. 1. You and your sister have decided to invest in a retail unit. You have decided to obtain an adjustable rate mortgage ARM). You anticipate to sell the unit after five years. The lender offers you a $4,275,000, 15-year ARM with the following term

Initial interest rate = 3 percent
Index = 1-year Treasuries
Payments adjusted each year
Margin = 2 percent
Interest rate cap = 2 percent annually; 5 percent lifetime
Discount points = 2 percent
Based on estimated forward rates computed from the yield curve on U.S. Treasury bills, the index to which
the ARM is tied is forecasted as follows:
end of year (EOY) 1 = 3.5 percent;
EOY 2 = 4.5 percent;
EOY 3 = 7 percent;
EOY 4 = 7.5 percent.

Compute the payments, loan balances, and yield for the ARM for the five-year period.