1. A borrower is purchasing a property for $180,000 and can choose between two possible loan alternatives. Loan A is a 90% loan for 25 years at 9% interest and 1 point and Loan B is a 95% loan for 25 years at 9.25% interest and 1 point.

a. Assume the loans will be held to maturity, what is the incremental cost of borrowing the extra money.

b. Assume that the loans will be repaid in 5 years. What is the incremental cost of borrowing the extra money?

c. Rework parts (a) and (b) assuming the lender is charging 2 points on Loan A and 1 point on Loan B. What is the incremental cost of borrowing?

d. Assume Loan B now has a maturity of 20 years. What is the incremental cost of borrowing? Both loans held to maturity with no points charged