Question Two (15 marks) A basic ARM is made for Sh. 200,000 at an initial interest rate of 6 percent for 30 years with an nnual reset date. The borrower believes that the interest rate at the beginning of year 2 will increase to 7 percent a) be during year 1? b) Based on (a) what will the loan balance be at the end of year 1'? c) Given that the interest rate is expected to be 7 percent at the beginning of year 2, what will monthly payments be during year 2? d) What will be the loan balance at the end of year 2? e) What would be the monthly payments in year 1 if they are to be interest only? 0 Assuming terms in (c), what would monthly interest only payments be in year 2