Joe is considering buying a 2500 sqft house in Natomas for $366,000. He decides to visit his local bank to see what kind of loan he can get for his potential home. Right away the loan officer tells him about a promotional ARM that will let him pay interest only payments at a rate of prime minus 2% for the first 3 years.

Prime = 5%

Margin = 2%

After the first year, use the composite interest rate.

Assume for each problem that he made interest only payments for the first year.

If prime increases by 1.5 percentage points the next year, what is his monthly payment for the second year?

A.$2,268.53

B.$2,252.74

C.$2,251.38

D.$1,871.61

E.$1,098.00

How to get the answer A?