Suppose that you are taking out an adjustable-rate mortgage. Use the information provided below to calculate the monthly payments for the 2^nd year of the loan. The prime rate is currently 2.5% and it will fall to 1.5% at the end of the 1^st year. Assume that the lender will employ monthly payments and monthly compounding.

Amount borrowed: $500,000

Index rate: Prime Rate

Margin: 225 basis points

Adjustment Period: Annually

Periodic Cap: 2 percentage points

Lifetime Cap: 5 percentage points

Amortization: 30 years

A. $2,041

B. $2,224

C. $2,323

D. $2,608

E. $2,657

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