A borrower takes out a 30-year mortgage loan for $250,000 with an interest rate of 5% APR compounded monthly with level monthly payments. There is also a 2% Origination Fee so at the very beginning, she receives 250,000*98% = 245,000. Assume she will pay the loan for 30 years following the original loan schedule. What would be the Effective Annual Rate (EAR)? Hints: 1. Monthly Payment is based on $250,000; 4 2. with Excel Rate function, calculate the Effective Monthly Rate (EMR), here PV is what the borrower actually receives (after deduction of 2%) 3. then EAR= (1+EMR)^12-1 O 5.30% O 5% 4.70% O Not enough information
A borrower takes out a 30-year mortgage loan for $250,000 with an interest rate of 5% APR compounded monthly with level monthly payments. There is also a 2% Origination Fee so at the very beginning, she receives 250,000*98% = 245,000. Assume she will pay the loan for 30 years following the original loan schedule. What would be the Effective Annual Rate (EAR)? Hints: 1. Monthly Payment is based on $250,000; 4 2. with Excel Rate function, calculate the Effective Monthly Rate (EMR), here PV is what the borrower actually receives (after deduction of 2%) 3. then EAR= (1+EMR)^12-1 O 5.30% O 5% 4.70% O Not enough information
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:A borrower takes out a 30-year mortgage loan for $250,000 with an
interest rate of 5% APR compounded monthly with level monthly
payments. There is also a 2% Origination Fee so at the very beginning,
she receives 250,000*98% = 245,000. Assume she will pay the loan for
30 years following the original loan schedule.
What would be the Effective Annual Rate (EAR)?
Hints:
1. Monthly Payment is based on $250,000;
2. with Excel Rate function, calculate the Effective Monthly Rate (EMR),
here PV is what the borrower actually receives (after deduction of 2%)
3. then EAR (1+EMR)^12-1
O 5.30%
O 5%
=
O 4.70%
O Not enough information
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education