Question
1. An investor has $60,000 to invest in a $280,000 property. He can obtain either (option A) a $220,000 loan at 9.5 percent for 20
1. An investor has $60,000 to invest in a $280,000 property. He can obtain either (option A) a $220,000 loan at 9.5 percent for 20 years; or (option B) a $180,000 loan at 8.75 percent for 20 years and a second mortgage for $40,000 at 13 percent for 20 years. All loans require monthly payments and are fully amortizing. How much more would be the effective cost % if you went forward with option A instead of option B. I.e., what is cost% for A - cost% for B? (Notes: if the cost is less for option A, dont forget the negative sign. Input answer without % sign, e.g., 5.75% as 5.75.)
2. Refer to the same question. How much more would be the effective cost % if you went forward with option A instead of option B if the second mortgage in option B had a 10-year term instead? (Notes: if the cost is less for option A, dont forget the negative sign. Input answer without % sign, e.g., 5.75% as 5.75.)
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