Question

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

Amount =

$95,000

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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