Question

In: Finance

You have just borrowed $300,000 to buy a condo. You will repay the loan in equal...

You have just borrowed $300,000 to buy a condo. You will repay the loan in equal monthly payments of $3,950.37 over the next 20 years. a-1. What monthly interest rate are you paying on the loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) a-2. What is the APR? (Do not round intermediate calculations. Enter your answer as a whole percent.) b. What is the effective annual rate on that loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. What rate is the lender more likely to quote on the loan? APR EAR

Solutions

Expert Solution

$300000 is the PV of the monthly instalements of $3950.37
(annuity) for the next 240 months at a monthly interest rate of i, which is to be found out.
Hence, 300000 = 3950.37*PVIFA(i,240)
75.9423 = PVIFA(i,240)
The value of i can be found out by trial and error.
Using an online calculator
for i = 0.0125, PVIFA is exactly, 75.9423
a-1) Monthly interest rate = 1.25%
a-2) APR = 1.25*12 = 15%
b) EAR = 1.0125^12-1 = 16.08%
c) APR

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