You are a new loan officer with Alpha Mortgage, and the manager of the loan department has just presented a problem to you. He is unable to complete the APR calculation on an adjustable rate mortgage which a borrower applied for yesterday. The loan features initial payments based on a 10 percent rate of interest, while the current composite rate on the loan is 13 percent. No discount points have been paid by any party to the transaction, and any difference between borrower payments and the interest payment required at the composite rate will be accrued in the mortgage balance in the form of negative amortization. The mortgage amount desired by the borrower is $65,000 for a 30-year term, but a one-time mortgage insurance premium of $2,400 is being funded as a part of the loan amount, making the total loan balance $67,400. The borrower is paying $1,600 in prepaid finance charges at closing. Required:
a. Determine the APR, assuming that the ARM is made with a 2 percent annual and 5 percent over-the-life interest rate cap.
b. In what way does the APR disclosure aid the borrower in understanding the terms of this specific loan agreement? What are some of the problems with the APR calculations on ARMs?

Freese, inc., is in the process of preparing the fourth quarter budget for 2016, and the following data have been assembled: the company sells a single product at a price of $70 per unit. the estimated sales volume for the next six months is as follows: september 15,600 units october 14,400 units november 16,800 units december 24,000 units january 10,800 units february 12,000 units all sales are on account. the company's collection experience has been that 30% of a month's sales are collected in the month of sale, 68% are collected in the month following the sale, and 2% are uncollectible. it is expected that the net realizable value of accounts receivable (i.e., accounts receivable less allowance for uncollectible accounts) will be $396,032 on september 30, 2016. management's policy is to maintain ending finished goods inventory each month at a level equal to 30% of the next month's budgeted sales. the finished goods inventory on september 30, 2016, is expected to be 2,520 units. to make one unit of finished product, 6 pounds of materials are required. management's policy is to have enough materials on hand at the end of each month to equal 40% of the next month's estimated usage. the raw materials inventory is expected to be 21,168 pounds on september 30, 2016. the cost per pound of raw material is $5, and 70% of all purchases are paid for in the month of purchase; the remainder is paid in the following month. the accounts payable for raw material purchases is expected to be $79,758 on september 30, 2016. a. prepare a sales budget in units and dollars, by month and in total, for the fourth quarter (october, november, and december) of 2016.