Question

Joseph has obtained a $169,000, 5/1 30-year ARM at 5%. During the first 3 years, he has an option of paying interest only. If he accepts this offer, what would be his initial payment?

A. $756.92
B. $746.18
C. $579.17
D. $704.17

Answer 1

The answer would be D.$704.17 (Hope this helps)

Answer 2

The initial payment will be D. $704.17

Explanation:

Joseph has obtained a $169,000, 5/1 30-year ARM at 5%.

During the first 3 years, he has an option of paying interest only. So, it is simple interest.

Simple interest is given as :

`(p* r* t)/(100)`

here, p = 169000

r = 5%

t = 30

Putting values in formula:

`(169000*5*30)/(100)` = $253500

As this is interest for 30 years or 360 months. So, for initial interest we will divide the interest with 360.

`(253500)/(360)=704.166` ≈ $704.17

Therefore, the initial payment will be $704.17