With an ARM, you make monthly payments that vary depending on the interest rate at the beginning of each year. You have borrowed $60,000 on a 30-year ARM. For the first year, monthly payments are based on the current annual T-bill rate of 9 percent. In years 2–5, monthly payments will be based on the following annual T-bill rates +2 percent:

Year 2 10 percent

Year 3 13 percent

Year 4 15 percent

Year 5 10 percent

The ARM contains a clause that ensures that monthly payments can increase by no more than 7.5 percent from one year to the next. To compensate the lender for this provision, the borrower adjusts the ending balance of the loan at the end of each year, based on the difference between what the borrower actually paid and what they should have paid had this clause not been in place. Determine the monthly payments during years 1–5 of the loan.