Please use the information below to answer questions 18-19

Henry wants to purchase a property for $750,000. He can borrow a 80% LTV fixed-rate loan (the original loan amount is $600,000), with 4.75% annual interest rate and a 2% origination fee and no point. Or, he can borrow a 90% LTV fixed-rate loan (the original loan amount is $675,000), with 5.5% annual interest rate, and a 2% origination fee and no point. Both loans have a 30-year amortization period. He plans to resell this property 7 years later (to prepay at the end of year 7). The table below shows these two options.

	Option 1	Option 2
Home value	$750,000	$750,000
LTV	80%	90%
Annual interest rate	4.75%	5.50%
Loan discount point	0	0
All loan closing fees	2%	2%
Loan terms (in years)	30	30
Original loan amount	$600,000	$675,000
Monthly payment	$3,129.88	$3,832.58
Remaining balance @ end of year 7	$524,949.91	$599,507.23

What will be the incremental cost of borrowing (ICB) for him to borrow the additional 10% loan amount?

Group of answer choices

A. 11.049%

B. 9.00%

C. 11.607%

D. 11.478%

E. No answer within +/- 0.1% of the correct one

If Henry can earn a rate of return of 12.5% from other investment opportunities of the same risk as borrowing that addition 10%, which option should Henry choose?

Group of answer choices

A. Option 1 - borrowing with an 80% LTV

B. Option 2 - borrowing with a 90% LTV

C. Cannot determine

No answer text provided.