The Bhatts purchased a new home for $235,000 with a down payment of $47,000. They obtained a 20-year adjustable rate mortgage with the following terms. The interest rate is based on the one-year Treasury bill rate, which is currently at 1.5%, 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.4.0%

(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 3.0%, determine the Bhatts’ new ARM rate.