Reference no: EM132935706

Scarecrow's Bar and Grill has recently been put up for sale. Bruce, a wealthy young bachelor, is extremely interested in purchasing the restaurant. The asking price is $850,000. Since Bruce is seen as a low credit risk client by the bank, he has negotiated an $800,000 mortgage loan, written at 4.75% per annum, compounded weekly, with a 5-year term, and semi-annual payments, rounded up to the next higher dollar. The mortgage will be amortized over 20 years and the bank will receive a $10,000 brokerage fee that will be deducted from the face value of the loan of $800,000.

Problem 1: How much would Bruce owe at the end of the five-year contractual term? (1) $661,676.07

(2) $675,513.38

(3) $652,157.41

(4) $664,727.73

Problem 2: What is the effective annual rate (j1) paid by Bruce, on the funds actually advanced? (1) 5.601482%

(2) 4.956355%

(3) 4.298552%

(4) 5.177791%

Problem 3: Immediately after arranging the mortgage loan, the bank decides that they do not want to hold this investment. If the bank sells the mortgage loan to a third party for $810,000 and Bruce fulfils the terms of the contract with the third party, what is the effective annual rate earned by the third party for this investment?

(1) 4.55218%

(2) 5.60148%

(3) 4.09237%

(4) 5.23217%