question 1 fully explained

Answer each of the following questions. Your answers should be brief-i.e., about one to three sentences in length. If the question requires you to use a financial calculate or Excel, be sure to indicate the steps you took to solve the question in order to receive partial credit. Question 1 A borrower takes-out a fully amortizing ARM loan for $1,200,000. The loan term is 25 years, bearing interest of 2% over CPI, adjusting annually and compounding monthly. CPI is 4% during the first year, and it is 2% during the second year. (a) What is the balance of the loan at the end of the first year? (8 points) (b) What is the balance of the loan at the end of the second year? (8 points) Question 2 A homebuyer is offered a fixed rate loan having APR of 7.6%, compounding monthly. During the first year of the loan term, there is inflation of 2%. (a) During the first year of the loan term, what is the nominal interest rate for this loan? (3 points)