Calculate the borrowers effective cost of funds for the following loan if the loan is outstanding for the full 10-year term:

Loan Assumptions:

Loan Amount: $225,000

Interest Rate: 8.5%

Amortization Period: 20 Years

Loan Term: 10 Years

Payments Per Year: 12

Discount Points: 2

Other Costs: Appraisal, Title Work, Environmental: $2,600

Steps:

a. Calculate the periodic payment based on the contract loan amount, nominal interest rate, and full amortization period. What is the periodic payment?

b. Calculate the balloon payment based on contract loan amount and nominal interest rate. (Use FV method.) What is the balloon payment amount?

c. Reduce the PV by the amount of the discount points and the Other Costs. Solve for I/YR. What is the yield?

	1.	a. $1,952.60 - Periodic Payment b. $157,486.56 - Balloon Payment c. 9.04% - Yield
	2.	a. $ 655.08 - Periodic Payment b. $110,001 - Balloon Payment c. 2.05% - Yield
	3.	a. $1,254.39 - Periodic Payment b. $122,486.45 - Balloon Payment c. 7.04% - Yield
	4.	a. $2,052.30 - Periodic Payment b. $277,433.86 - Balloon Payment c. 9.88% - Yield