Question

A borrower obtains a one-year ARM which starts at 4.0% and has a margin of 3.0% and 2/6 caps. At the end of the first year, the index is 5.0%. What is the interest rate after the first adjustment

Answer 1

The answer is "6".

Step-by-step explanation:

In the given question the response is 6 because the new rate is the lower of the index + margin (in that case 5 + 3 = 8) whenever the interest rate changes as well as the current rate + cap (in that instance the value 4 + 2 = 6). Its rate of interest would also be 6 percent after the very first adjustment.