DorisWade purchased a condominium for $50,000 in 1987. Her down payment was $20,000. She financed the remaining amount as a $30,000, 30-year mortgage at 7%, compounded monthly. Her monthly payments are $200. It is now 2007 (20 years later) and Doris has sold the condominium for $100,000, immediately aftermaking her 240th payment on the unit. Her effective annual internal rate of return on this investment is closest to which answer below? (a) 3.6% (b) 8.5% (c) 5.3% (d) 1.5%

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Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.