1. An expected inflation premium is said to be part of the interest rate. What does this mean?
2. A mortgage loan is made to Mr. Jones for $30,000 at 10 percent interest for 20 years. If Mr. Jones has a choice between either a fully amortizing CPM or a CAM, which one would result in his paying a greater amount of total interest over the life of the mortgage?
Would one of these mortgages be likely to have a higher interest rate than the other? Explain your answer.