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Question 2 You have $1m to invest in a residential property worth $3m in Tsuen Wan and you are choosing between the following mortgages. (i)

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Question 2 You have $1m to invest in a residential property worth $3m in Tsuen Wan and you are choosing between the following mortgages. (i) a $2m loan at 9% for 10 years and (ii) a $1.5m loan at 9.2% for 10 years and a second mortgage for $0.5m at 8% for 10 years. These two fully amortizing loans are repaid monthly. Determine the effective costs of the two loans. Which alternative would you choose and why

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