The Bhatts purchased a new home for

$233,000

with a down payment of

$46,000.

They obtained a

25-year

adjustable rate mortgage with the following terms. The interest rate is based on the one-year Treasury bill rate, which is currently at

0.5%,

and the add-on rate, which is

2.5%.

The initial rate period is 5 years, and thereafter the interest rate is adjusted once a year and a new monthly mortgage payment is calculated.

a) Determine the Bhatts' initial ARM rate.

b) Determine the Bhatts' initial monthly payment for principal and interest.

c) If, after the 5-year initial rate period, the rate of the one-year Treasury bill rises to

2.0%,

determine the Bhatts' new ARM rate.