Andrew just bought a new boat for $15,000 to use on the river near his home. He has taken delivery of the boat and agreed to the terms of the following loan: all principal and interest is due in 3 years (balloon loan), first-year annual interest (on the purchase price) is set at 5%, this is to be adjusted up 1.5% per year for each of the following years of the loan.
(a) How much does Andrew owe to pay off the loan in 3 years?
(b) If inflation is 4%, what is the payment in Year-0 dollars?