Question: (8 points) Suppose a borrower takes out a $175,000 fixed rate, 30-year mortgage with an annual interest rate of 4.75%, paid monthly. The borrower pays

  1. (8 points) Suppose a borrower takes out a $175,000 fixed rate, 30-year mortgage with an annual interest rate of 4.75%, paid monthly. The borrower pays $4,500 in up-front financing fees and the lender charges 2.5 discount points.

  1. (2 points) What is the Effective Borrowing Cost (EBC)?

  1. (2 points) What is the Lenders Yield?

  1. (1 point) The expected cost of the loan to the borrower is _______ than the expected yield.

  1. (3 points) Provide an intuitive explanation for your answer in d) using 2-4 sentences. Your answer should use at least 2 key terms from class.

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