You are interested in a $280,000 adjustable rate mortgage (ARM) with a 30-year term. For the first 5 years, the interest rates 3.5% for the first two years and 4% for the next two years and 4.5% for the last year. After the fifth year, the interest rate is set to be index to the U.S treasury bill.

a.

End of Year	Interest Rate (%)	Periods (N)	Monthly Payment ($)	Loan Balance ($)
1	3.5
2	3.5
3	4
4	4
5	4.5

b. You are also considering a $280,000 fixed-rate level payment mortgage (LPM) with a 30-year term and a 4.25% contract interest rate. At the end of 5 years, which mortgage has a larger balance? Hint: You need to compute the monthly payments first

(Note: The ans "fixed" or "adjustable")

The rate mortgage has a larger balance at the end of 5 years.