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
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter22: Providing And Obtaining Credit
Section: Chapter Questions
Problem 2P: Cost of Bank Loan Mary Jones recently obtained an equipment loan from a local bank. The loan is for...
Related questions
Question
![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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F123b26ad-13a6-4c7c-8afb-def2a380cb61%2Fab64cfef-fa56-414f-b4db-720ce3fef8e0%2Fubeo3fg_processed.jpeg&w=3840&q=75)
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
![](/static/compass_v2/shared-icons/check-mark.png)
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
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
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
![Intermediate Financial Management (MindTap Course…](https://www.bartleby.com/isbn_cover_images/9781337395083/9781337395083_smallCoverImage.gif)
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
![Pfin (with Mindtap, 1 Term Printed Access Card) (…](https://www.bartleby.com/isbn_cover_images/9780357033609/9780357033609_smallCoverImage.jpg)
Pfin (with Mindtap, 1 Term Printed Access Card) (…
Finance
ISBN:
9780357033609
Author:
Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:
Cengage Learning
![Intermediate Financial Management (MindTap Course…](https://www.bartleby.com/isbn_cover_images/9781337395083/9781337395083_smallCoverImage.gif)
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
![Pfin (with Mindtap, 1 Term Printed Access Card) (…](https://www.bartleby.com/isbn_cover_images/9780357033609/9780357033609_smallCoverImage.jpg)
Pfin (with Mindtap, 1 Term Printed Access Card) (…
Finance
ISBN:
9780357033609
Author:
Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:
Cengage Learning