Question
Suppose that you have two loan choices with monthly payments Choice Loan Amount Term (years) Interest Rate 1 $ 250,000 30 5% 2 $ 220,000
Suppose that you have two loan choices with monthly payments
| Choice | Loan Amount | Term (years) | Interest Rate |
| 1 | $ 250,000 | 30 | 5% |
| 2 | $ 220,000 | 30 | 4.50% |
A) What is the incremental borrowing cost of $30,000 for loan 1 over loan 2 if you hold the loan for the entire term and there are no origination costs for the two loans?
B) What is the incremental borrowing cost of $30,000 for loan 1 over loan 2 if you hold the loan for only 6 years (72 months) and there are no obligations costs for the two loans?
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Bond Markets Analysis and Strategies
Authors: Frank J.Fabozzi
9th edition
133796779, 978-0133796773
