Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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A borrower can obtain an 80 percent loan with an 9 percent interest rate and monthly
payments. The loan is to be fully amortized over 25 years. Alternatively, he could obtain a 95
percent loan at an 9.5 percent rate with the same loan term. The borrower plans to own the
property for the entire loan term.
Required:
a. What is the incremental cost of borrowing the additional funds? (Hint: The dollar amount of
the loan does not affect the answer.)
b. What is the incremental cost of borrowing the additional funds if 2 points were charged on
the 95 percent loan?
c. What is the incremental cost of borrowing the additional funds if the borrower planned to
own the property for only five years?
Complete this question by entering your answers in the tabs below.
Required A
Required B Required C
What is the incremental cost of borrowing the additional funds if the borrower planned to own the
years? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Incremental cost of borrowing
%
Required R
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Transcribed Image Text:A borrower can obtain an 80 percent loan with an 9 percent interest rate and monthly payments. The loan is to be fully amortized over 25 years. Alternatively, he could obtain a 95 percent loan at an 9.5 percent rate with the same loan term. The borrower plans to own the property for the entire loan term. Required: a. What is the incremental cost of borrowing the additional funds? (Hint: The dollar amount of the loan does not affect the answer.) b. What is the incremental cost of borrowing the additional funds if 2 points were charged on the 95 percent loan? c. What is the incremental cost of borrowing the additional funds if the borrower planned to own the property for only five years? Complete this question by entering your answers in the tabs below. Required A Required B Required C What is the incremental cost of borrowing the additional funds if the borrower planned to own the years? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Incremental cost of borrowing % Required R
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