You are buying a house and will borrow $240,000 on a 30-year fixed rate mortgage with...
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You are buying a house and will borrow $240,000 on a 30-year fixed rate mortgage with monthly payments to finance the purchase. Your loan officer has offered you a mortgage with an APR of 4.65%. Alternatively, she tells you that you can "buy down" the interest rate to 4.40% if you pay points up front on the loan. A point on a loan is 1% (one percentage point) of the loan value. You believe that you will live in the house for only nine years before selling the house and buying another house. This means that in nine years, you will pay off the remaining balance of the original mortgage. What is the maximum number of points that you would be willing to pay now? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) Maximum points One of your customers is delinquent on his accounts payable balance. You've mutually agreed to a repayment schedule of $540 per month. You will charge 1.3% per month interest on the overdue balance. If the current balance is $16,400, how long will it take for the account to be paid off? (Do not round intermediate calculations. Ensure to round up the final answer to the nearest whole number.) Months for account to be paid off months This problem illustrates a deceptive way of quoting interest rates called add-on interest. Imagine that you see an advertisement for Crazy Judy's Stereo City that reads something like this: "$1,340 Instant Credit! 17% Simple Interest! Three Years to Pay! Low, Low Monthly Payments!" You're not exactly sure what all this means and somebody has spilled ink over the APR on the loan contract, so you ask the manager for clarification. Judy explains that if you borrow $1,340 for three years at 18% interest, in three years you will owe: $1,340 183 = $1,340 1.64303 = $2,201.66 Now, Judy recognizes that coming up with $2,201.66 all at once might be a strain, so she lets you make "low, low monthly payments" of $2,201.66/36 = $61.16 per month, even though this is extra bookkeeping work for her. What is the APR (monthly) on this loan? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Annual percentage rate % What is the EAR? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Effective percentage rate % You are buying a house and will borrow $240,000 on a 30-year fixed rate mortgage with monthly payments to finance the purchase. Your loan officer has offered you a mortgage with an APR of 4.65%. Alternatively, she tells you that you can "buy down" the interest rate to 4.40% if you pay points up front on the loan. A point on a loan is 1% (one percentage point) of the loan value. You believe that you will live in the house for only nine years before selling the house and buying another house. This means that in nine years, you will pay off the remaining balance of the original mortgage. What is the maximum number of points that you would be willing to pay now? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) Maximum points One of your customers is delinquent on his accounts payable balance. You've mutually agreed to a repayment schedule of $540 per month. You will charge 1.3% per month interest on the overdue balance. If the current balance is $16,400, how long will it take for the account to be paid off? (Do not round intermediate calculations. Ensure to round up the final answer to the nearest whole number.) Months for account to be paid off months This problem illustrates a deceptive way of quoting interest rates called add-on interest. Imagine that you see an advertisement for Crazy Judy's Stereo City that reads something like this: "$1,340 Instant Credit! 17% Simple Interest! Three Years to Pay! Low, Low Monthly Payments!" You're not exactly sure what all this means and somebody has spilled ink over the APR on the loan contract, so you ask the manager for clarification. Judy explains that if you borrow $1,340 for three years at 18% interest, in three years you will owe: $1,340 183 = $1,340 1.64303 = $2,201.66 Now, Judy recognizes that coming up with $2,201.66 all at once might be a strain, so she lets you make "low, low monthly payments" of $2,201.66/36 = $61.16 per month, even though this is extra bookkeeping work for her. What is the APR (monthly) on this loan? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Annual percentage rate % What is the EAR? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Effective percentage rate %
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Related Book For
Fundamentals of Corporate Finance
ISBN: 978-0077861704
11th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
Posted Date:
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