A lender makes a loan of $100,000 at a 6% interest rate for 25 years with monthly payments. The lender will require an origination fee of $1,000 and will also discount the loan by some amount.

PART A- What will the monthly payments be?

a. $593.56

b. $599.55

c. $637.80

d. $644.30

e. $780.65

PART B- By what amount must the lender discount the loan such that the effective interest rate would be 8%, assuming the mortgage will be sold at par one year after closing? (How many discount points will the lender charge)?

a. $743 (0.74 dp)

b. $901 (0.9 dp)

c. $1,000 (1 dp)

d. $2,887 (2.9 dp)

e. $1,887 (1.9 dp)

PART C- Suppose the lender discounts the loan by the amount calculated in the last question. What is the annual percentage rate (APR) on this loan?

a. 5.45%

b. 6.00%

c. 6.11%

d. 6.20%

e. 6.65%

PART D- What will the outstanding balance of the loan be after eight years assuming you make the first 96 payments exactly on time?

a. $78,832

b. $79,627

c. $82,276

d. $84,707

e. $86,760

PART E- Assume the borrower repays the loan after 8 years. What is the effective borrowing cost (EBC) on this loan?

a. 6.10

b. 6.17

c. 6.33

d. 6.50

e. 6.84