Solve the Problem. -You Need a Loan of $120,000 to Buy a Home

Multiple Choice

Solve the problem.
-You need a loan of $120,000 to buy a home. You have a choice between a 30-year fixed rate loan at 3% and an ARM with a first-year rate of 2%. Suppose that the ARM rate rises to 5.5% at the start of
The third year. Neglecting compounding and changes in principal, estimate how much extra you
Will be paying per month during the third year of the ARM over what you would have paid if you
Had taken the fixed rate loan.

A) $220
B) $250
C) $230
D) $240