(1) A borrower finds that the incremental cost of borrowing an extra $10,000 is 14%. If the borrower can earn 12% on alternative investments of comparable risk should he borrow the extra $10,000 at 14%? 

 

(2) What is the amount to principle reduction for the 180th payment?

 

Transcribed Image Text:

Payment Opening Monthly Month's Balance Payment 1 $475,000 $3,055.62 Interest $2,640.21 Principal Closing Reduction Balance $415.41 $474,584.57 2 $3,055.62 --- 50 --- 180 360 --- --- --- - $3,055.62 $3,055.62 $3,055.62 --- --- --- --- --- ? --- --- $0 Payment Opening Monthly Month's Balance Payment 1 $475,000 $3,055.62 Interest $2,640.21 Principal Closing Reduction Balance $415.41 $474,584.57 2 $3,055.62 --- 50 --- 180 360 --- --- --- - $3,055.62 $3,055.62 $3,055.62 --- --- --- --- --- ? --- --- $0

Answer rating: 100% (QA)

1 No the borrower should not borrow the extra 10000 at 14 if they can only earn 12 on alternativ... View the full answer