Given that a private owner is building an office building that will cost $71.3 million to construct, and the owner is taking out a coupon bond (sometimes also called a construction mortgage). The bank is loaning the owner the cost of construction at an annual interest rate of 9.00%. The construction period is expected to be 18 months. The interest only payments are to be paid every 6 months by the owner. The loan is backed by the asset of the building itself (the lender takes ownership of the building if the owner does not make the payments on time). At the end of the 18 months, the owner either has to pay back the $71.3 million in addition to the last interest payment, or convert the $71.3 million into a regular mortgage. The owner and bank have agreed to convert the construction mortgage into a permanent mortgage when construction is done at 18 months, rather than the owner pay back the $71.3 million. The permanent mortgage will be for the $71.3 million. The term of the mortgage is 10 years and the annual interest rate is 7.75%, with principal and interest to be paid off every 3 months (quarterly) over the 10 year period.

a) What is the quarterly payment?

b) What is the total amount of principal and interest paid by the owner over the term of the loan?

c) What would the difference in interest paid over the term of the loan be if the interest rate was 10.00%?