You purchase a property and obtain a mortgage for $100,000. The interest rate from the bank is 5.25% and the bank charges a 1.0% of the loan amount as an origination fee. When you calculate the IRR of your loan only, i.e. not the property and loan cash flows together, will the IRR be lower or higher that 5.25%. i.e. will you have paid more or less than 5.25% ? Briefly explain why.

You purchase a property and obtain a mortgage for $100,000. The interest rate from the bank is 5.25% and the bank charges a 1.0% of the loan amount as an origination fee. When you calculate the IRR of your loan only, i.e. not the property and loan cash flows together, will the IRR be lower or higher that 5.25%. i.e. will you have paid more or less than 5.25% ? Briefly explain why.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 14P

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