Q2Unlike a regular bond, a mortgage loan amortizes: every period, the borrower repays interest and a fraction of the principal. Consider a 10 year mortgage loan for $40.000 with 3% yearly interest rate and a constant yearly payment.

1. Compute the constant yearly paymentC.

2. Over the 10 years of the mortgage, decompose each payment ofCinto an

interest rate payment and a principal repayment. Plot in a graph this two 1

components over time.

Tips: At a given point in time, the interest rate payment is equal to 3% of the current principal balance. The initial balance is the total amount of the loan.

Thanks in advance!