2. Suppose the rate on a 30 year fixed rate loan is quoted by your lender as 6% with monthly compounding. The home that you are buying has an agreed on price of $1million. You plan on putting down a 20% down payment to avoid private mortgage insurance.

a. What would your monthly payment of principal and interest be?

b. Suppose your lender offers you (for the same house, same agreed on price, and same down payment) a 1 year ARM and assume that the interest rate can reset after 1 year. The initial rate (right now) is 5.09% for the first year. What would be your monthly payment of principal and interest for the first year?

c. Suppose for the same ARM in part b, what is your remaining balance after 1 year (you have made payments through month 12)? Note: there is a quick way to do this without amortizing the loan.