A borrower received a 30-year ARM mortgage loan for $200,000. Rate caps are 3/2/6 (initial

adjustment cap/periodic interest rate cap/lifetime interest rate cap). The start rate is 3.50% and
the loan adjusts every 12 months for the life of the mortgage. The index used for this mortgage
is LIBOR, which, for this exercise is 3.00% at the start of the loan, 4.45% at the end of the first
year, and 4.50% at the end of the second year. The margin on the loan is 3.00%, which remains
the same for the duration of the loan