Assume that you are looking to obtain a commercial real estate loan for a property that is for sale at $10,000,000 and generates $1,000,000 per year in NOI (Net Operating Income). You have $2,000,000 in cash that can be used as the equity (down payment) for the loan. All loans have a 25-year amortization period and a 5-year term. 

(A) What is the effective cost of borrowing (lender’s yield) expressed as a percentage (%) for the following loan for the 5-year term?

This lender offers you a PLAM (Price Level Adjusted Mortgage) with a 5% stated interest rate. Assume that the outstanding mortgage is upwardly adjusted by an index of 3% at the end of each of the 5 years.

Answer rating: 100% (QA)

To calculate the effective cost of borrowing or lenders yield for this PLAM Price Level Adjusted Mortgage with a 5year term you need to take into acco... View the full answer