Question
(12 points) Leslie and Ben are interested in a $250,000 fully amortizing loan and are deciding between 2 options, mortgage A and mortgage B Mortgage
- (12 points) Leslie and Ben are interested in a $250,000 fully amortizing loan and are deciding between 2 options, mortgage A and mortgage B
| Mortgage A | Mortgage B |
| Loan term: 30 years Annual interest rate: 5.75 % Monthly payments Up-front financing costs: $4,500 Discount points: 2.5
| Loan term: 15-years Annual interest rate: 5.25 % Monthly payments Up-front financing costs: $7,500 Discount points: 2.5
|
- Calculate the monthly payments for mortgage A and B.
- Calculate the effective borrowing cost for or mortgage A and B.
- Calculate Lenders Yield for or mortgage A and B
- Suppose you are the borrower. Based on the effective borrowing costs, which loan would you choose? Explain your answer in 1-2 sentences.
- Suppose you are the lender. Based on the lenders yield, which loan would you prefer? Explain your answer in 1-2 sentences.
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Contemporary Financial Management
Authors: R. Charles Moyer, James R. Mcguigan, William J. Kretlow
9th Edition
032416470X, 9780324164701
