Assume that the loan amount is $100,000 and confirm your answer by calculating sums as in Example 9.
1. The effective mortgage rate for a 30-year mortgage at 5.71% interest compounded monthly with one discount point that is expected to be kept for 4 years is
(a) 6%.
(b) 5.54%.
(c) 6.56%.
(d) 7%.
(For a 5.71%, 30-year mortgage, R = $581.03 and the unpaid balance after 4 years is $94,341.50.)
2. The effective mortgage rate for a 15-year mortgage at 5.481% interest compounded monthly, with three discount points, that is expected to be kept for 10 years is
(a) 5%.
(b) 6%.
(c) 6.5%.
(d) 7%.
(For a 5.481%, 15-year mortgage, R = $816.08 and the unpaid balance after 10 years is $42,743.72.)