You are purchasing a house and your bank is giving you a special mortgage that will require annual payments for

24

years. The amount borrowed now is

$390,000

and the first mortgage payment will be in one year.

a. Using C as the payment amount, indicate on a timeline all of the cash flows from your perspective related to this mortgage (outflows should be indicated as a negative number).

b. What will your payments be if the interest rate is

3.4%

per year?

c. What will your payments be if the interest rate is

5.4%

per year?

d. Comparing your answers in parts b and c, when interest rates increased by

2%,

by what percent did the mortgage payments increase?