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A house price of $100,000 can be financed with two loans below with monthly payments. The total origination cost associated with these two loans is
A house price of $100,000 can be financed with two loans below with monthly payments. The total origination cost associated with these two loans is $2,000.
Loan Amount | Term (years) | Interest Rate | |
1st loan | $ 80,000 | 30 | 5% |
2nd loan | $ 10,000 | 30 | 7% |
Alternatively, the borrower can borrow one loan in the amount of $90,000 with origination cost of $1,500. What should the interest rate be on the $90,000, 30 years loan with monthly payments so that the borrower will be indifferent between these two alternatives?
4.28%
5.28%
6.28%
7.28%
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