John wants to "roll in" or finance the loan fee of $3,900 into the loan amount which would make the loan $91,900 and the interest rate is 7%. Assume that the lender agrees to allow the loan fees to be included in the loan amount. Required: a. How much will the lender actually disburse? b. What is the APR for the borrower, assuming that the mortgage is paid off after 30 years (full term)? c. If John pays off the loan after five years, what is the effective interest rate? d. Assume the lender also imposes a prepayment penalty of 2 percent of the outstanding loan balance if the loan is repaid within eight years of closing. If John repays the loan after five years with the prepayment penalty, what is the effective interest rate?
John wants to "roll in" or finance the loan fee of $3,900 into the loan amount which would make the loan $91,900 and the interest rate is 7%. Assume that the lender agrees to allow the loan fees to be included in the loan amount. Required: a. How much will the lender actually disburse? b. What is the APR for the borrower, assuming that the mortgage is paid off after 30 years (full term)? c. If John pays off the loan after five years, what is the effective interest rate? d. Assume the lender also imposes a prepayment penalty of 2 percent of the outstanding loan balance if the loan is repaid within eight years of closing. If John repays the loan after five years with the prepayment penalty, what is the effective interest rate?
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
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Transcribed Image Text:John wants to "roll in" or finance the loan fee of $3,900 into the loan amount which would
make the loan $91,900 and the interest rate is 7%. Assume that the lender agrees to
allow the loan fees to be included in the loan amount.
Required:
a. How much will the lender actually disburse?
b. What is the APR for the borrower, assuming that the mortgage is paid off after 30
years (full term)?
c. If John pays off the loan after five years, what is the effective interest rate?
d. Assume the lender also imposes a prepayment penalty of 2 percent of the outstanding
loan balance if the loan is repaid within eight years of closing. If John repays the loan
after five years with the prepayment penalty, what is the effective interest rate?
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