1. Tim wants to buy an apartment that costs $1,750,000 with an 85% LTV mortgage. Tim got a 30 year, 3/1 ARM with an initial teaser rate of 3.75%. The reset margin on the loan is 300 basis points above 1 year CMT. There are no caps. The index was 1% at the time of origination. Tim also had to pay 6.5 points for this loan. Compute the true APR (annualized IRR) for this loan.

2. A bank makes a 30 year Fully Amortizing FRM for $1,500,000 at an annual interest rate of 5% compounded monthly, with monthly payments. Suppose inflation is 2% per year, compounded monthly. What is the real value of the 120^th payment?