Question
Incremental cost of borrowing You are interested in acquiring a property. They sell you a house for $104,000. The appraisal was for the same amount
Incremental cost of borrowing You are interested in acquiring a property. They sell you a house for $104,000. The appraisal was for the same amount as the sale price. They are offering you two alternatives: a loan of $93,600 at 11% over 30 years or a loan of $83,200 at 10% over 30 years as well. Both loans are fully amortized.
a. Determine the marginal cost or incremental cost of borrowing (incremental cost of borrowing). 10 points b. How is the interest rate of each alternative related to the marginal cost or incremental cost of the loan? Presents calculation (5 points) and explanation (5 points). c. Which alternative would you choose if you had the $10,400 in your hands? Explain. 5 points
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