You purchase a property and obtain a mortgage for $100,000. The interest rate from the bank is 5.25% and the bank charges a 1.0% of the loan amount as an origination fee. When you calculate the IRR of your loan only, i.e. not the property and loan cash flows together, will the IRR be lower or higher that 5.25%. i.e. will you have paid more or less than 5.25% ? Briefly explain why.

You purchase a property and obtain a mortgage for $100,000. The interest rate from the bank is 5.25% and the bank charges a 1.0% of the loan amount as an origination fee. When you calculate the IRR of your loan only, i.e. not the property and loan cash flows together, will the IRR be lower or higher that 5.25%. i.e. will you have paid more or less than 5.25% ? Briefly explain why.

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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