The Chopras wish to purchase a new house, even though they plan to be in it for only 6 years. The house costs \($550\),000, and they will make a \($55\),000 down payment, leaving \($495\),000 to be financed. They are considering three loans, and in all cases points apply to only the \($495\),000: (1) a 30-year jumbo conventional for 6.875 percent with 0.25 points plus \($14\),344.50 in other closing costs, (2) a 30-year jumbo ARM loan at 6 percent over 30 years with 0.125 points plus \($13\),558.25 in other closing costs, and (3) a 30-year interest-only balloon loan at 5.5 percent, 0.625 points plus \($45\),769 in other closing costs. The ARMin part (2) can go either up or down by 75 basis points per year (0.750 percent), they wish to evaluate it both (i) remaining constant over the 6 years, and (ii) under the worstcase result where it starts at 6 percent and in the second and each subsequent year increases by 0.750 percent.

a. For each loan, determine the monthly payment (years 1 through 6 for the ARM).

b. Perform a PW analysis on each of the four scenarios, assuming the Chopras continue to own the house exactly 6 years. Their TVOM is 8 percent.