John wants to buy a property for USD 105,000 and once on 80% loan for USD 84000. A lender indicates that a fully amortizing loan can be obtained for 30 years at 8% interest payable monthly. However a loan origination fee of USD 3500 will be necessary for John to obtain the loan. Required: a) how much will the lender actually distribute b) what is the effective interest rate for the borrower assuming that the mortgage is paid off after 30 years C) if John pays the loan after five years what is the effective interest rate and why it's different from the effective interest in (b)above

John wants to buy a property for USD 105,000 and once on 80% loan for USD 84000. A lender indicates that a fully amortizing loan can be obtained for 30 years at 8% interest payable monthly. However a loan origination fee of USD 3500 will be necessary for John to obtain the loan. Required: a) how much will the lender actually distribute b) what is the effective interest rate for the borrower assuming that the mortgage is paid off after 30 years C) if John pays the loan after five years what is the effective interest rate and why it's different from the effective interest in (b)above

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 15P

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