A basic ARM is made for $215,000 at an initial interest rate of 6 percent for 30 years with an annual reset date. The borrower believes that the interest rate at the beginning of year (BOY ) 2 will increase to 7 percent. Required:

a. Assuming that a fully amortizing loan is made, what will the monthly payments be during year 1? b. Based on (a) what will the loan balance be at the end of year (EOY ) 1?

Please show how