An ARM is made for $200,000 for 30 years. The start interest rate is 5% and the borrower will make monthly interest-only payments for the first three years. Payments thereafter must be sufficient to fully amortize the loan at maturity. At the beginning of year 4, if the interest rate increases to 6%, what will the monthly payments be in year 4 then? (Choose the nearest value)

	a.	$1,247.97
	b.	$1,073.64
	c.	$1,126.08
	d.	$1,199.10

Which of the following is FALSE?

	a.	For an ARM loan, any interest forgone because of limitations or caps will be become a part of the loan balance but will not accrue compound interest
	b.	ARMs tied to short-term indices are safer to lenders than ARMs tied to long-term indices
	c.	All else being equal, the interest rate risk incurred by lender will be higher when the loan agreement contains maximum caps than when the loan agreement contains no maximum caps
	d.	The expected yield on an ARM loan should be lower than the expected yield on a FRM loan at origination