Ruby wants to buy an $1,200,000 house in San Diego without putting any money down. In other words, she wants to borrow $1,200,000. She approaches several lenders and is left with only one option that includes three distinct fully amortizing loans with monthly payments. The first loan is for 80% of the purchase price with a 30-year term and 4.25% interest rate. The second loan is for 15% of the purchase price with a 20-year term and a 6.75% interest rate. The third loan is for 5% of the purchase price. The third loan has the lowest level lien priority, so the lender wants to be paid back quicker and charges a higher rate. The third loan has a 10-year term and an 9.50% interest rate.

A. Calculate the effective cost of the three loans for the full 30-year holding period. (8 points)

B. Calculate the effective cost of the three loans for a 20-year holding period. (7 points)

Answer rating: 100% (QA)

A To calculate the effective cost of the three loans for the full 30year holding period we will firs... View the full answer