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A property is expected to have N O ? of $ 1 4 0 , 0 0 0 the first year. The N O ?
A property is expected to have of $ the first year. The is expected to increase by percent per year
thereafter. The appraised value of the property is currently $ million and the lender is willing to make a $
participation loan with a contract interest rate of percent. The loan will be amortized with monthly payments over a
year term. In addition to the regular mortgage payments, the lender will receive percent of the in excess of
$ each year until the loan is repaid. The lender also will receive percent of any increase in the value of the
property. The loan includes a substantial prepayment penalty for repayment before year and the balance of the
loan is due in year If the property has not been sold, the participation will be based on the appraised value of the
property. Assume that the appraiser would estimate the value in year by dividing the for year by an
percent capitalization rate.
Required:
Calculate the effective cost to the borrower of the participation loan assuming the loan is held for years. Note that
this is also the expected return to the lender.Do not round intermediate calculations. Round your final answer to
decimal places.
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