Question
Use the following to answer the next 5 questions: A lender makes a loan of $100,000 at a 6% interest rate for 25 years with
Use the following to answer the next 5 questions:
A lender makes a loan of $100,000 at a 6% interest rate for 25 years with monthly payments. The lender will require an origination fee of $1,000 and will also discount the loan by some amount.
1.. What will the monthly payments be?
a. $593.56
b. $599.55
c. $637.80
d. $644.30
e. $780.65
2. By what amount must the lender discount the loan such that the effective interest rate would be 8%, assuming the mortgage will be sold at par one year after closing? (How many discount points will the lender charge)?
a. $743 (0.74 dp)
b. $901 (0.9 dp)
c. $1,000 (1 dp)
d. $1,887 (1.9 dp)
e. $2,887 (2.9 dp)
3. Suppose the lender discounts the loan by the amount calculated in the last question. What is the annual percentage rate (APR) on this loan?
a. 5.45%
b. 6.00%
c. 6.11%
d. 6.20%
e. 6.65%
4. What will the outstanding balance of the loan be after eight years assuming you make the first 96 payments exactly on time?
a. $78,832
b. $79,627
c. $82,276
d. $84,707
e. $86,760
5. Assume the borrower repays the loan after 8 years. What is the effective borrowing cost (EBC) on this loan?
a. 6.10
b. 6.17
c. 6.33
d. 6.50
e. 6.84
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