Suppose that you are considering borrowing $175,000 in the form of an adjustable-rate mortgage. Use the information provided below to answer the questions that follow.

Index Rate: Prime Rate (Currently 0.45%)

Margin: 275 basis points

Periodic Cap: 2 percentage points

Lifetime Cap: 5 percentage points

Amortization: 30 years

a. What will your initial monthly payment be for this loan?

b. Suppose that you were able to lock-in your initial payment for the first 2 years of the loan. If the prime rate increases to 1.1% over that period of time what will your monthly payment be for year 3?