Assume today is the 1st of September 2021. Pedro Carvalho wishes to purchase a home in the
Question:
Assume today is the 1st of September 2021. Pedro Carvalho wishes to purchase a home in the outskirts of Lisbon. He is particularly interested in the apartments of a new residential complex (The One), which is being built close to Oeiras. He is particularly interested in a two-bedroom apartment, which costs €1500000. He will pay upfront 18% of the house price. The remaining value will be financed through a bank loan. Old Bank is willing to provide Mr. Carvalho with a 45-year loan today with constant monthly payments that are due in the last day of each month. The first payment will occur at the end of the first month. The applicable APR, monthly compounded, for the loan is a fixed rate computed as follows:
current 12-month Euribor rate plus spread. Please assume the current spread for the loan is the average spread for floating rate loans in 2021.
The spread is 1.14 percental points. (Euribor 12 months is 2.794%). Give a detailed written explanation of the rationale behind the results.
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta