1 a) If the rate of inflation is 5.9 %, what nominal interest rate is necessary for you to earn a 3.3 % real interest rate on yourinvestment? (Note: Be careful not to round any intermediate steps less than six decimalplaces.)

The nominal interest rate is _____%.

b) Five years ago you took out a5/1 adjustable rate mortgage and thefive-year fixed rate period has just expired. The loan was originally for $304,000 with 360 payments at 4.2% APR, compounded monthly.

i. Now that you have made 60 payments, what is the remaining balance on theloan?

ii. If the interest rate increases by 1.2 % to 5.4% APR, compoundedmonthly, what will be your newpayments?