Consider an adjustable rate mortgage (ARM) of $100,000 with a maturity of 30 years and monthly payments. At the end of each year, the interest rate is adjusted to become two percentage points above the index.There is an annual cap of 300 basis points, and a lifetime cap of 500 basis points.(i.e., with 3/5 interest rate caps). The lender offers a teaser of 1% for the first year

The following are the current and future index rates:

Time

T-Bill Yield

At origination (for year 1)=

3.50%

At end of year 1 (for year 2)=

4.00%

At end of year 2 (for year 3)=

8.00%

At end of year 3 (for year 4)=

5.00%

At end of year 4 (for year 5)=

11.00%

How much interest expense of the loan will be paid in year 1, 2, and 3?