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 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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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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