Aryana is considering to purchase a house in Hamdaniyyah, Jeddah that is worth around SAR 125000...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Aryana is considering to purchase a house in Hamdaniyyah, Jeddah that is worth around SAR 125000 riyals. She approaches MMR bank, and after due diligence, the bank is willing to provide 80% financing. She is faced with two choices for financing. The first option is a fixed-rate loan for 30 years. The interest rate for the 30-year fixed-rate plan is 12% per annum, with a closing cost 1% of principal. The second option is a one-year ARM plan that uses adjustable rate that is tied to the one-year T-bill rate. The one-year ARM has a 9% initial interest rate with a 2% annual cap and a 5% loan cap [This means, interest rates can increase/decrease by 2% maximum each year, and the maximum interest rate will be 14%, which is 9% + 5% cap, and the minimum possible rate is 4%, which is 9% - 5% cap). The ARM loan also requires a closing cost of 2% of principal. In addition to the closing costs, MMR bank also charges an additional fee of 1% of principal for either loan. Question 1 If Aryana chooses to go for the fixed rate loan, what would be the actual annual interest rate she would be paying for her loan? (5 marks) Question 2 If Aryana chooses to go for the ARM loan, compute the maximum and minimum possible interest rate she could be paying. (5 marks) Aryana is considering to purchase a house in Hamdaniyyah, Jeddah that is worth around SAR 125000 riyals. She approaches MMR bank, and after due diligence, the bank is willing to provide 80% financing. She is faced with two choices for financing. The first option is a fixed-rate loan for 30 years. The interest rate for the 30-year fixed-rate plan is 12% per annum, with a closing cost 1% of principal. The second option is a one-year ARM plan that uses adjustable rate that is tied to the one-year T-bill rate. The one-year ARM has a 9% initial interest rate with a 2% annual cap and a 5% loan cap [This means, interest rates can increase/decrease by 2% maximum each year, and the maximum interest rate will be 14%, which is 9% + 5% cap, and the minimum possible rate is 4%, which is 9% - 5% cap). The ARM loan also requires a closing cost of 2% of principal. In addition to the closing costs, MMR bank also charges an additional fee of 1% of principal for either loan. Question 1 If Aryana chooses to go for the fixed rate loan, what would be the actual annual interest rate she would be paying for her loan? (5 marks) Question 2 If Aryana chooses to go for the ARM loan, compute the maximum and minimum possible interest rate she could be paying. (5 marks)
Expert Answer:
Answer rating: 100% (QA)
1 The interest rate for the 30year fixedrate plan is 12 per annum with a closing cost of 1 of princi... View the full answer
Related Book For
Introduction To Federal Income Taxation In Canada
ISBN: 9781554965021
33rd Edition
Authors: Robert E. Beam, Stanley N. Laiken, James J. Barnett
Posted Date:
Students also viewed these finance questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Plaintiffs James and Heidi Glassford, who brought suit to obtain compensation for an allegedly negligent home inspection, appeal the superior courts order granting summary judgment in favor of the...
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
The supplies account had a beginning balance of $1,523. Supplies purchased during the period totaled $4,928. At the end of the period before adjustment, $382 of supplies were hand. Prepare the...
-
The data below represents the bacterial growth in a liquid culture over a number of days. Find a best-fit equation to the data trend. Try several possibilities-linear, parabolic, and exponential. Use...
-
Consider the previous question, but include + or letter grades. A+ is 4.25, A is 3.75, B+ is 3.25, B is 2.75, and so on. a. Why cant we use one switch statement with no other conditionals to convert...
-
What is the System Element Architecture (SEA) Model?
-
On June 1, Bash Salad Dressings creates a petty cash fund with an imprest balance of $450. During June, Al Franklin, the fund custodian, signs the following petty cash tickets: On June 30, prior to...
-
Encik Zubir ( a certified handicapped person ) is the owner of a financial consulting firm, Bijak Wealth Enterprise. The business assists its clients to grow their wealth. Encik Zubir is married to...
-
Figure E3.3 shows a pulse function,u(t). (a) From the information shown in Fig. 3.3, calculate the pulse width, t w . (b) Express u(t) as the sum of simpler functions (some perhaps translated in...
-
1. JC and Rein were childhood friends turned lovers. As their love grew deeply with each other, they decided to get "united", so they married each other. However, during their marriage, they found...
-
At September 30, 2023, Fern Field Farms, Inc. reported $142,000 of cash, $78,000 of other assets, $120,000 of liabilities, and $100,000 of common stock. Prepare the company's September 30, 2023...
-
1.9- Martin purchased a van for 12,000 during his six-month period of account to 31 July 2023. What is the maximum amount of capital allowances available for the van for the six months ended 31 July...
-
1.3 - Andi Ltd manufactures hair products, which are standard-rated for VAT. The products are sold to Bart Ltd, a wholesaler. Charlotte purchases these goods to use in her hairdressing business,...
-
During the morning peak hour, a total of 5 , 5 0 0 person - trips are made to downtown along a major arterial in the city: 4 5 0 0 person - trips are made by car and 1 0 0 0 person - trips are made...
-
what advice to increase disposable income for the information below would you give - Income: 1 . Salary: 1 1 8 , 0 0 0 2 . Self - employment income: 2 4 , 5 0 0 3 . Bank account interest: 3 0 . 7...
-
Determine the assignment plan that will minimise the total cost. Calculate the total cost. A B C D E Job 1 4 5 9 8 7 Job 2 6 4 8 3 5 Job 3 7 4 10 6 7 Job 4 5 2 5 5 8 Job 5 6 5 3 4 9
-
Graph one period of each function. y = 4 cos x
-
Blake, a recent accounting program graduate, earned the following during the year: Gross income from employment.....................................$7,000 Provincial lottery...
-
Valerie Borg is a vice-president of Program Management with an equipment leasing company in Calgary. Recently, Valerie was approached by a large public company, Key Equipment Finance Limited ("Key"),...
-
Duncan Ltd. is a Canadian-controlled private corporation owned by Mr. William Duncan. Mr. Duncan purchased all shares of Duncan Ltd. on July 1 of the prior year for $500,000 in an arm's length...
-
\(X\) is the number of bits in error in the next four bits transmitted. What is the expected value of the square of the number of bits in error? Now, \(h(X)=X^{2}\). Therefore, \[ \begin{aligned}...
-
Proportion of US adults who own a cell phone. In a survey of 1006 US adults in 2014, 90% said they had a cell phone. Give the correct notation for the quantity described and give its value.
-
In March 2015, a Nielsen global online survey "found that consumers are increasingly willing to pay more for socially responsible products." Over 30,000 people in 60 countries were polled about their...
Study smarter with the SolutionInn App