(Show computation, no financial calculator)

You are thinking of purchasing a house. The house costs $350,000. You have $50,000 in cash that you can use as a down payment on the house, but you need to borrow the rest of the purchase price. The bank is offering a 30-year mortgage that requires annual payments and has an interest rate of 7% per year.

a. What will your annual payment be if you sign up for this mortgage?

b. Suppose, you can afford to pay only $23,500 per year. The bank agrees to allow you to pay this amount each year, yet still, borrow $300,000. At the end of the mortgage (in 30 years), you must make a balloon payment; that is, you must repay the remaining balance on the mortgage. How much will this balloon payment be?