Question: Daniel and Evelyn are considering buying a house valued at $250,000. They have combined savings of $20,000, and the bank approved a $200,000 first mortgage.

Daniel and Evelyn are considering buying a house valued at $250,000. They have combined savings of $20,000, and the bank approved a $200,000 first mortgage. Another financial institution agreed to provide them with a $20,000 second mortgage. Also, Daniel has just won $10,000 from a lottery. If Daniel and Evelyn invested their money in guaranteed certificates, they would be able to earn 4%. The interest rates offered by the bank are 6% for the first mortgage and 7% for the second.

Calculate Daniel and Evelyn’s cost of capital.

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