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An arm loan has a 4.00% start rate, and it is time for the first adjustment to be made. it has a periodic cap of 1% and a lifetime cap of 5%. assuming that the rate undergoes the maximum possible increase, what will the rate be after its first adjustment

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lilaipo

The rate after its first adjustment is 5%. The ARM adjustment would be controlled by the periodic cap, because the "true rate" or "fully-indexed rate" is 6.00% (1%+5%). Because the periodic cap prevents the start rate from moving any more than 2% at any given adjustment, the first move can only go as high as 5.00%.

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