A borrower takes out a 30-year mortgage loan for $250,000 with an interest rate of 5% APR compounded monthly with level monthly payments. There is also a 2% Origination Fee so at the very beginning, she receives 250,000*98% = 245,000. Assume she will pay the loan for 30 years following the original loan schedule. What would be the Effective Annual Rate (EAR)? Hints: 1. Monthly Payment is based on $250,000; 4 2. with Excel Rate function, calculate the Effective Monthly Rate (EMR), here PV is what the borrower actually receives (after deduction of 2%) 3. then EAR= (1+EMR)^12-1 O 5.30% O 5% 4.70% O Not enough information

A borrower takes out a 30-year mortgage loan for $250,000 with an interest rate of 5% APR compounded monthly with level monthly payments. There is also a 2% Origination Fee so at the very beginning, she receives 250,000*98% = 245,000. Assume she will pay the loan for 30 years following the original loan schedule. What would be the Effective Annual Rate (EAR)? Hints: 1. Monthly Payment is based on $250,000; 4 2. with Excel Rate function, calculate the Effective Monthly Rate (EMR), here PV is what the borrower actually receives (after deduction of 2%) 3. then EAR= (1+EMR)^12-1 O 5.30% O 5% 4.70% O Not enough information

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter22: Providing And Obtaining Credit

Section: Chapter Questions

Problem 2P: Cost of Bank Loan Mary Jones recently obtained an equipment loan from a local bank. The loan is for...

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Calculating single-payment loan amount due at maturity. Stanley Price plans to borrow 8,000 for five years. The loan will be repaid with a single payment after five years, and the interest on the loan will be computed using the simple interest method at an annual rate of 6 percent. How much will Stanley have to pay in five years? How much will he have to pay at maturity if hes required to make annual interest payments at the end of each year?
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Cost of Bank Loan Mary Jones recently obtained an equipment loan from a local bank. The loan is for 15,000 with a nominal interest rate of 11%. However, this is an installment loan, so the bank also charges add-on interest. Mary must make monthly payments on the loan, and the loan is to be repaid in 1 year. What is the effective annual rate on the loan (assuming a 365-day year)?
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