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An ARM loan with a teaser start rate of 1.5% for the first year, an index of one-year LIBOR, a margin of 2.0%, and

periodic and lifetime interest rate increase caps of 2%/7% with annual adjustments, would have a maximum interest rate of what for the fourth loan year if one-year LIBOR is 4.5% at that time?

a) 5.5%

b) 6.5%

c) 7.5%

d) 8.5%

How do I calculate this?

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