an interest only arm is made for 300,000 for 30 years. The start rate is 5% per year and the borrower will make monthly interest-only payments for three years. Payments thereafter must be sufficient to fully amortise the loan at maturity.

a) If the borrower makes the interest only payment for three years, what will the payments be?

b) assume that at the end of the year 3 the reset rate is 6 percent per year. The borrower must now make payments so as to fully amortize the loan. What will the payments be?