You just borrowed $500,000 using a 30 year home loan that's interest-only for the first 3 years, and principal and interest (P&I) for the remaining 27 years. The interest rate is 3.72% pa compounding monthly which is not expected to change. Which of the following statements is NOT correct? a. The effective monthly rate is 0.0031 per month, given as a decimal. If the interest rate rises, the IO and P&I monthly payments will rise. b. If the IO term was one year longer so the P&I term was one year shorter, then

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
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You just borrowed $500,000 using a 30
year home loan that's interest-only for the
first 3 years, and principal and interest
(P&I) for the remaining 27 years.
The interest rate is 3.72% pa
compounding monthly which is not
expected to change.
Which of the following statements is NOT
correct?
a. The effective monthly rate is 0.0031
per month, given as a decimal. If the
interest rate rises, the IO and P&I monthly
payments will rise.
b. If the IO term was one year longer so
the P&I term was one year shorter, then
the monthly payments over the P&I term
would be higher.
c. The 10 loan's perpetuity factor is
354.83871, while the P&I loan's annuity
factor is 204.247161.
d. The IO loan payments will be $1,550
per month, rounded to the nearest cent.
e. The P&I loan payments will be
$2,448.01 per month, rounded to the
nearest cent.
Transcribed Image Text:You just borrowed $500,000 using a 30 year home loan that's interest-only for the first 3 years, and principal and interest (P&I) for the remaining 27 years. The interest rate is 3.72% pa compounding monthly which is not expected to change. Which of the following statements is NOT correct? a. The effective monthly rate is 0.0031 per month, given as a decimal. If the interest rate rises, the IO and P&I monthly payments will rise. b. If the IO term was one year longer so the P&I term was one year shorter, then the monthly payments over the P&I term would be higher. c. The 10 loan's perpetuity factor is 354.83871, while the P&I loan's annuity factor is 204.247161. d. The IO loan payments will be $1,550 per month, rounded to the nearest cent. e. The P&I loan payments will be $2,448.01 per month, rounded to the nearest cent.
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