Homework Help is Here – Start Your Trial Now!
Business
Finance
A property is expected to have NOI of $120,000 the first year. The NOI is expected to increase by 5 percent per year thereafter. The appraised value of the property is currently $1.25 million and the lender is willing to make a $1,135,000 participation loan with a contract interest rate of 5.5 percent. The loan will be amortized with monthly payments over a 2 0-year term. In addition to the regular mortgage payments, the lender will receive 50 percent of the NOI in excess of $12 0,000 each year until the loan is repaid. The lender also will receive 50 percent of any increase in the value of the property. The loan includes a substantial prepayment penalty for repayment before year 5, and the balance of the loan is due in year 10. (If the property has not been sold, the participation will be based on the appraised value of the property.) Assume that the appraiser would estimate the value in year 10 by dividing the NOI for year 11 by a 9 percent capitalization rate. Required Calculate the effective cost (to the borrower) of the participation loan assuming the loan is held for 10 years. (Note that this is also the expected return to the lender.) Note: Do not round intermediate calculations. Round your final answer to 2 decimal places.

A property is expected to have NOI of $120,000 the first year. The NOI is expected to increase by 5 percent per year thereafter. The appraised value of the property is currently $1.25 million and the lender is willing to make a $1,135,000 participation loan with a contract interest rate of 5.5 percent. The loan will be amortized with monthly payments over a 2 0-year term. In addition to the regular mortgage payments, the lender will receive 50 percent of the NOI in excess of $12 0,000 each year until the loan is repaid. The lender also will receive 50 percent of any increase in the value of the property. The loan includes a substantial prepayment penalty for repayment before year 5, and the balance of the loan is due in year 10. (If the property has not been sold, the participation will be based on the appraised value of the property.) Assume that the appraiser would estimate the value in year 10 by dividing the NOI for year 11 by a 9 percent capitalization rate. Required Calculate the effective cost (to the borrower) of the participation loan assuming the loan is held for 10 years. (Note that this is also the expected return to the lender.) Note: Do not round intermediate calculations. Round your final answer to 2 decimal places.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 3P
See similar textbooks
icon
Related questions
Question
Please correct answer and don't use hand raiting
A property is expected to have NOI of $120,000 the first year. The NOI is expected to increase by 5 percent per year thereafter. The appraised value of the property is currently $1.25 million and the lender is willing to make a $1,135,000 participation loan with a contract interest rate of 5.5 percent. The loan will be amortized with monthly payments over a 2 0-year term. In addition to the regular mortgage payments, the lender will receive 50 percent of the NOI in excess of $12 0,000 each year until the loan is repaid. The lender also will receive 50 percent of any increase in the value of the property. The loan includes a substantial prepayment penalty for repayment before year 5, and the balance of the loan is due in year 10. (If the property has not been sold, the participation will be based on the appraised value of the property.) Assume that the appraiser would estimate the value in year 10 by dividing the NOI for year 11 by a 9 percent capitalization rate. Required Calculate the effective cost (to the borrower) of the participation loan assuming the loan is held for 10 years. (Note that this is also the expected return to the lender.) Note: Do not round intermediate calculations. Round your final answer to 2 decimal places.
Transcribed Image Text:A property is expected to have NOI of $120,000 the first year. The NOI is expected to increase by 5 percent per year thereafter. The appraised value of the property is currently $1.25 million and the lender is willing to make a $1,135,000 participation loan with a contract interest rate of 5.5 percent. The loan will be amortized with monthly payments over a 2 0-year term. In addition to the regular mortgage payments, the lender will receive 50 percent of the NOI in excess of $12 0,000 each year until the loan is repaid. The lender also will receive 50 percent of any increase in the value of the property. The loan includes a substantial prepayment penalty for repayment before year 5, and the balance of the loan is due in year 10. (If the property has not been sold, the participation will be based on the appraised value of the property.) Assume that the appraiser would estimate the value in year 10 by dividing the NOI for year 11 by a 9 percent capitalization rate. Required Calculate the effective cost (to the borrower) of the participation loan assuming the loan is held for 10 years. (Note that this is also the expected return to the lender.) Note: Do not round intermediate calculations. Round your final answer to 2 decimal places.
Expert Solution
steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 2
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
SEE MORE TEXTBOOKS