Calculating the effective interest rate on loan

Assignment Help Finance Basics

Reference no: EM131948590

Question: A borrower has a 30 year fully amortizing FRM, with a $300,000 balance, 4.5% rate. There is a 3% prepayment penalty on this loan if it is repaid before 5 years. After 5 years of holding this loan, market interest rates have dropped and the borrower is considering a refinance. A 25 year fully amortizing FRM is available with a 3% rate, and has $3,000 in origination fees. The borrower plans to pay all of the fees associated with repaying the old loan and originating the new loan upfront in cash. If the borrower plans to hold the new loan until maturity, what is the effective interest rate on this loan? (Round to 2 decimal places; if your answer is ten and half percent, enter 10.50.)

Reference no: EM131948590

Questions Cloud

What is your total return to date on the investment : You bought a share of 7.5 percent preferred stock for $91.60 last year. The market price for your stock is now $89.10.

Compute earnings per share and the p-e ratio : Compute earnings per share and the P/E ratio for 20X1. (The P/E ratio equals the stock price divided by earnings per share.)

Compute the EAR of the loan : To borrow $1,300, you are offered an add on interest loan at 8.8 percent with 12 monthly payments. Compute the 12 equal payments.

What is the effective cost of refinancing : A borrower made a mortgage loan 7 years ago for $160,000 at 10.25% interest for 30 years. The loan balance is now $151,806.62 and rates for this amount.

Calculating the effective interest rate on loan : A borrower has a 30 year fully amortizing FRM, with a $300,000 balance, 4.5% rate. There is a 3% prepayment penalty on this loan if it is repaid before 5 years.

Examine the project initial investment outlay : Boris is considering an expansion project. The necessary equipment can be purchased for $13515864, and shipping and installation costs are another $22851.

What is the monthly payment received by the borrower : A borrower obtain a $150000 reverse annuity mortgage with monthly payments over 10 years. If the interest rate of the mortgage loan is 8%.

What would the investor be willing to pay for the loan : A borrower has secured a 30 year, $150,000 loan at 7% with monthly payments. Fifteen years later, an investor wants to purchase the loan from the lender.

Define what is the internal rate of return on the loan : A borrower has a 30 year fully amortizing FRM, with a $300,000 balance, 4.5% rate. There is a 3% prepayment penalty on this loan if it is repaid before 5 years.

User Account

All Pages