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A house price of $100,000 can be financed with two loans below with monthly payments. The total origination cost associated with these two loans is $2,000. 1st loan 2nd loan $ Loan Amount 80,000 10,000 Term (years) 30 30 Interest Rate 5% 7%

A house price of $100,000 can be financed with two loans below with monthly payments. The total origination cost associated with these two loans is $2,000. 1st loan 2nd loan $ Loan Amount 80,000 10,000 Term (years) 30 30 Interest Rate 5% 7%

Essentials Of Investments
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
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A house price of $100,000 can be financed with two loans below with monthly payments. The total origination cost associated with these two loans is $2,000. 1st loan OO 2nd loan 4.28% 5.28% 6.28% $ 7.28% $ Loan Amount 80,000 Term (years) 30 10,000 Alternatively, the borrower can borrow one loan in the amount of $90,000 with origination cost of $1,500. What should the interest rate be on the $90,000, 30 years loan with monthly payments so that the borrower will be indifferent between these two alternatives? 30 Interest Rate 5% 7%
Transcribed Image Text:A house price of $100,000 can be financed with two loans below with monthly payments. The total origination cost associated with these two loans is $2,000. 1st loan OO 2nd loan 4.28% 5.28% 6.28% $ 7.28% $ Loan Amount 80,000 Term (years) 30 10,000 Alternatively, the borrower can borrow one loan in the amount of $90,000 with origination cost of $1,500. What should the interest rate be on the $90,000, 30 years loan with monthly payments so that the borrower will be indifferent between these two alternatives? 30 Interest Rate 5% 7%
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