lortgage with Points. Home loans sometimes involve "points," which are es charged by the lender. Each point charged means that the borrower ust pay 1% of the loan amount as a fee. For example, if the loan is for $100,000 nd 2 points are charged, the loan repayment schedule is calculated on a $100,000 pan but the net amount the borrower receives is only $98,000. Assume the interest ate is 1% per month. What is the effective annual interest rate charged on such a ban, assuming loan repayment occurs over 360 months? (LO5-4)

lortgage with Points. Home loans sometimes involve "points," which are es charged by the lender. Each point charged means that the borrower ust pay 1% of the loan amount as a fee. For example, if the loan is for $100,000 nd 2 points are charged, the loan repayment schedule is calculated on a $100,000 pan but the net amount the borrower receives is only $98,000. Assume the interest ate is 1% per month. What is the effective annual interest rate charged on such a ban, assuming loan repayment occurs over 360 months? (LO5-4)

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

See similar textbooks

Similar questions

Rank the following car loan descriptions from highest payment ot lowest payment. The loan amount is the same for all. 5-year loan 3% interest rate 5-year loan 4% interest rate 6-year loan 3% interest rate 6-year loan 4% interest rate
\A man loans $4,000 at one interest rate and $5,000 at a 1% greater rate. The $5,000 loan earns $110 more per year than the $4,000 loan earns. Determine the following: The interest rates. Explain the concepts/principles that were considered and the factors that affected the condition of item (a)
4) I have an NOI of$172,400. The lender indicated that I can borrow funds at a 7.0% interest rate with a 25 year amortization and 5 year term at a 1.20 Debt Service Ratio(DCR). The lender will charge 2 points. a. What is the monthly payment? b.What is the APR (annual percentage rate) if fully amortized? C.What is the APR at the end of the loan term? d.What if I pay the loan off at the end of the second year, what is my APR? e.What if there was a prepayment penalty of 1.5% at the end of year 4, what is myAPR?
What is the maximum amount granted as an unsecured loan given the below parameter? Net Sales: CHF 2'000'000 FCF: CHF 200'000 Credit appetite of lender: 6 years Interest rate after taxes: 4.0% Calculatory tax rate: 25%
You are looking at a one-year loan of $20,000. The interest rate is quoted as 10 percent plus 2 points. A point on a loan is simply 1 percent (one percentage point) of the loan amount. Quotes similar to this one are common with home mortgages. The interest rate quotation in this example requires the borrower to pay 2 points to the lender up front and repay the loan later with 10 percent interest. What rate would you actually be paying here?
A borrower has two alternatives for a loan: (1) issue a $360,000, 60-day, 5% note or (2) issue a $360,000, 60-day note that the creditor discounts at 5%. a. Compute the amount of the interest expense for each option. b. Determine the proceeds received by the borrower in each situation. c. Which alternative is more favorable to the borrower? Explain.
Consider a borrower who took a loan worth 10000 at the beginning of period 1. The loan is to be repaid over 20 periods. Furthermore, assume that the interest rate is equal to 5%. How much does the borrower owe in debt at the beginning of period 3? Don't use Excel
Consider two loans with a 1-year maturity and identical face values: a(n) 8.3% loan with a 0.99% loan origination fee and a(n) 8.3% loan with a 4.9% (no-interest) compensating balance requirement. Which loan would have the higher effective annual rate (EAR)? Why? The EAR in the first case is %. (Round to one decimal place.)
Find the return on a loan under the following conditions. The base rate on the loan is 5%, the risk premium applied is 4%. The bank charges a 0.5% origination fee, imposes a 5% compensating balance and is subject to a 10% reserve requirement.
The Assured Independence Bank has offered to lend you $200,000 on a line of credit. Interest is charged at 11% and there is a commitment fee of $500. If the payment terms are 2/10 n45 what is the cost of this loan? Express the cost of this option as a simple interest rate (%+2 decimal places).
P.rah Use the following amortization chart: Selling price of home Down payment Principal (loan) Rate of interest Years Payment per $1,000 Monthly mortgage payment $ 93,000 $ 5,000 $ 88,000 5.5% 30 $ 5.68 $ 499.84 Assume the interest rate rises to 7%. What is the total cost of interest with the new interest rate? (Use Table 15.1). (Do not round intermediate calculations. Round your final answer to the nearest cent.) Total cost of interest $
A local restaurant decides to take out an amortized loan as follows: Amount of loan = $50,000; Interest rate = 8%; Term = 5 years. After two instalments the borrower decides to pay off the loan. What is the payoff amount? a. $32,273 b. $22,331 c. $31,543 d. $31,670 Accrual basis in loan pricing refers to a. the number of days used to calculate interest b. the effective yield c. the method of accounting used to record the loans d. none of the above Which of the following accurately describes the other real estate owned that appears as an asset on the bank’s balance sheet? a. includes premises and equipment b. includes only the land owned by the bank. c. usually represents property obtained through foreclosure on problem loans d. is limited to the equipment owned by the bank Collateral does not reduce the risk of a loan per se, because a. it is not part of the loan agreement b. the risk of a loan is determined by the borrower’s willingness and ability to repay…

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS