After finding your dream house, you need to settle the financing. Two banks are willing to...

 

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After finding your dream house, you need to settle the financing. Two banks are willing to loan you the $50,000 that you need. The terms, however, are not the same. Loan A is a 30 year note with an annual percentage rate (APR) of 14%. Payments are to be made at the end of each month. Loan A also requires 3 points (3% of the loan value) to be paid at the closing. Loan B has a 15% APR with monthly payments. Loan B is also for 30 years but does not require any points to be paid at the closing. You intend to keep the house forever. If money has a time value to you of 15%, which loan do you prefer? How many points can you pay on loan A before you become indifferent between loan A and B? Your time value of money is 15%. a. b. After finding your dream house, you need to settle the financing. Two banks are willing to loan you the $50,000 that you need. The terms, however, are not the same. Loan A is a 30 year note with an annual percentage rate (APR) of 14%. Payments are to be made at the end of each month. Loan A also requires 3 points (3% of the loan value) to be paid at the closing. Loan B has a 15% APR with monthly payments. Loan B is also for 30 years but does not require any points to be paid at the closing. You intend to keep the house forever. If money has a time value to you of 15%, which loan do you prefer? How many points can you pay on loan A before you become indifferent between loan A and B? Your time value of money is 15%. a. b.

Answer rating: 100% (QA)

a Since the time value of money is 15 it means that 1 today is worth more than 1 in the future There... View the full answer