Choice Rate Points a 7.00% 0.00 b 6.65% 0.30 C 6.50% 5.00

Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter11: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 11.18E
Question

Brittany decides to buy a house with price of $500,000. She puts 20% down payment and consider a 15-year fixed rate mortgage to pay the remaining balance. The lender offers Brittany three choices of the mortgage with monthly payments on the table. 

Suppose that the origination cost is $8,000.

a. If the loan will be outstanding for 15 years, what is the effective cost for each choice? Which choice would Brittany like to make? Why?

b. Which mortgage choices are not properly priced? Why?

 

Choice
Rate Points
a
7.00%
0.00
b
6.65%
0.30
C
6.50%
5.00
Transcribed Image Text:Choice Rate Points a 7.00% 0.00 b 6.65% 0.30 C 6.50% 5.00
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