In: Finance
You have just purchased a new warehouse. To finance the purchase, you've arranged for a 30-year mortgage loan for 80 percent of the $2,600,000 purchase price. The monthly payment on this loan will be $11,000.
a. What is the APR on this loan?
b. What is the EAR?
a.Information provided:
Purchase price = $2,600,000
Loan= present value= 0.80*$2,600,000 = $2,080,000
Time= 30 years*12= 360 months
Monthly payment= $11,000
The yield to maturity is calculated by entering the below in a financial calculator:
PV= -2,080,000
N= 360
PMT= 11,000
Press the CPT key and I/Y to compute the yield to maturity.
The value obtained is 0.4058
Therefore, the yield to maturity is 0.4058%*12= 4.8690% 4.87%.
2.The effective annual yield is calculated using the below formula:
Effective annual yield= (1+r/n)^n-1
Where r is the interest rate and n is the number of compounding periods in one year.
Effective annual yield = ( 1 + 0.0487/ 12)^12 – 1
= 1.0498 – 1
= 0.0498*100
= 4.98%