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A price level adjusted mortgage (PLAM) is made with the following terms:


Amount =



Initial interest rate = 4 percent


Term — 30 years


Points — 6 percent


Payments to be reset at the beginning of each year


Assuming inflation is expected to increase at the rate of 6 percent per year for the next five years:


a. Compute the payments at the beginning of each year (BOY)


b. What is the loan balance at the end of the fifth year?


c. What is the yield to the lender on such a mortgage?


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