Ann wants to buy an office building which costs $2,000,000. She obtains a 30 year fully...

Ann wants to buy an office building which costs $2,000,000. She obtains a 30 year fully amortizing fixed rate mortgage with 80% LTV, an annual interest rate of 4%, with monthly compounding and monthly payments.

The mortgage has a 2% prepayment penalty if the borrower prepays in the first 5 years. Suppose Ann makes the required monthly payment for 3 years and prepays after her final monthly payment at the end of 3 years. What is the annual IRR on Ann’s mortgage?

ANSWER: 4.60%

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Ann wants to buy an office building which costs $2,000,000. She obtains a 30 year fully...

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