Question

In: Finance

You have just borrowed $100,000 to buy a condo. You will repay the loan in equal...

You have just borrowed $100,000 to buy a condo. You will repay the loan in equal monthly payments of $804.62 over the next 30 years.

a. What monthly interest rate are you paying on the loan?'

b. What is the APR?

c. What is the effective annual rate on that loan?

d. What rate is the lender more likely to quote on the loan?

Expert Solution

Given that,

amount borrowed PV = $100000

equal monthly payment = $804.62

term in year = 30

So, total number of payment = 30*12 = 360

interest rate can be calculated on financial calculator using following values:

FV = 0

PV = 100000

PMT = -804.62

N = 360

compute for I/Y, we get I/Y = 0.75

So, monthly rate = 0.75%

APR = 12*monthly rate = 12*0.75 = 9%

c). effective annual rate = (1+APR/n)^n - 1 = (1 + 0.09/12)^12 - 1 = 9.38%

d). Lender will quote APR on the loan as APR is less than Effective annual rate.

jeff jeffy answered 2 years ago

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